Question

Topic: Strategy

Getting The Leverage

Posted by Anonymous on 7/15/2009 at 8:51 AM ET 250 Points
Hello everyone,

My company provides co branded free spiral bound notebooks to universities.

We're already in talks and soon we will get into negotiating the contract clauses.

I wanted to provide contract which span over 1 year / 2 year and 4 year.

Whereas for 1 year the university will receive lower incentive and 4 year they will receive higher incentive so as to encourage the university to commit to longer working relations with our company.

I think the university definitely wanted an option to opt out in the contract otherwise it'll be a no go for them so I guess I'll have to include an opt out option.

Having that opt-out option somehow made the 1 year / 2 year 4 year contract meaningless as they can always opt for a 4 year contract which gives higher incentives and still opt-out at anytime.

I need somewhat of a leverage such as if they opt for 1 year contract, they'll need an advance 1 month notice for opting out and if they opt for a 4 year contract they'll need an advance 12 month notice to opt-out.

Can you help me think of other leverage to make the contract more meaningful?

Thanks for reading guys, hope to hear from you soon.

Cheers
Josh
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RESPONSES

  • Posted by bill.hall on 7/15/2009 at 8:59 AM Accepted
    I would do exactly what magazines do.

    If you purchase a full year, you get a lower per insertion rate.

    If you cancel before the year is up, the rate per insertion is recalculated.

    For example, if you bought 1 year's worth of advertising, but then wanted to cancel after 6 months, your per insertion cost would be recalculated and you would then owe the difference between the lower 12 month committment rate and the 6 month insertion rate.

    So if they commit to 4 years, but drop out after 2, they are charged the 2 year rate and owe you the difference.
    That is the best way to handle it and the concept is familiar and established.

    The nice thing too is if the have to cancel early and you feel there is hope for future business, you can be nice and waive the extra fees or reduce them as you wish which makes a nice business deal without costing you extra. Magazines do that too...

    Good luck!
  • Posted on 7/15/2009 at 9:04 AM Author
    Hi Bill, thanks for your prompt response.

    We actually pay the university per distribution. So if we're distributing 4 times this year, we will pay them 4 times and not upfront such as 1 year or so.

    In addition the money is rather insignificant and not one of our major concern, we're looking for a leverage more on the business wise.

    Thanks again Bill, it's a very good suggestion nonetheless and we will certainly adopt it
  • Posted by michael on 7/15/2009 at 9:22 AM Member
    Josh,

    Would it make sense to tie it to your inventory? I don't completely understand the relationship but, unlike magazines, you can't sell co-branded stuff to someone else.

    If you are delivering 4 times per year, certainly you'd need to have 3 months advance notice.

    I certainly wouldn't have the "at any time for any reason" phrase in there.

    Michael
  • Posted by Gary Bloomer on 7/15/2009 at 1:41 PM Accepted
    Dear Joshlim80

    Four years ago I had to move house. The lease on my apartment was a 12 month agreement. I had to break my lease half way through its term.

    I'd signed a lease agreement which clearly spelled out that were the terms of the lease to be broken by the lease holder (me) i'd be liable for two months rent in full.

    With your contract you could word things in a similar way, but extend the time period to six months payment in full, or whatever you are comfortable with and whatever the universities procurement department will accept.

    But remember, they as the client have the right to refuse your terms and find another supplier. So, you might want to work out a deal that suites you and them. Tell them you really want their business (beginning of a long term relationship and all that), and what might they be looking for in terms of an agreement that would benefit you and them?

    I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA
  • Posted by Jay Hamilton-Roth on 7/16/2009 at 8:33 AM Member
    Focus instead on the reason WHY they might want to opt-out. Do they think that a better offer will come from a competitor? Are they thinking of doing it themselves? Are they afraid of a student backlash? Answer the potential problems before they sign the contract so there will be no reason for them to opt-out.
  • Posted on 7/16/2009 at 8:51 AM Author
    Thanks guys for the very helpful advice and suggestions.

    The incentive or money is less of our concern as well as the institution.

    I'm sorry if I wasn't clear when I talk on the leverage as I don't mean leverage in a sense of which will discourage them to opt-out because we will certainly do a good job in avoiding that and worse comes to worse if they really wanted to opt-out they definitely will by any means.

    I was just wondering what other benefits or terms that could differentiate the year 1 / 2 and 4 contracts apart from each other. Like an example I posted earlier, for year 1 contract they may only need 2 months advance notice for termination but for year 4 contract they may need 12 months advance notice for termination etc.

    Just like if you've ordered a car and was required to pay a deposit of 200 or 400 or 600 which are all refundable. With 600 deposit you'll get extra free gifts and there is no difference between each deposits due to the refundable policy
  • Posted by cookmarketing@gmail. on 7/16/2009 at 10:22 PM Accepted
    Rebate...stay with us for X amount of time, and at the end of the period, you will receive a rebate of $X...time it out as you wish. If opt out still felt to be mandatory, at least they will think it through on what monies will be 'gone'.
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