1) Your understanding of the real costs of the product you wish to source
2) Your understanding of the nature/traits of the person(s) you will be dealing with
3) Your rapport with them
4) how badly you need the product and how soon, ie. if you have any time to let him think about a price/qty relaxation
Whatever be your current status of the 2nd and 3rd point, and provided you have some time on the 4th point, you have to try to achieve the foll:
1) Get to know how his business works and what costs/risks go into making the product/Service. This will also help you understand why others are not into that business.
2) Then find out what is the approx cost of the product as a percentage of the price he is quoting. If it is supernormal/ exorbitant, this, in itself, is your bargaining point.
3) Let him know, in a polite manner, that you really understand how his business works, appreciating the risks and costs they have to bear. You then tell him that compared to what his costs are (discuss this a bit to get to a agreeable approximation of the costs with him), his price is very high. Knowing human nature, the person would feel a bit embarrassed to ask you to pay the same price, as he himself knows he is highly overcharging.
4) For a monopoly supplier, Price/cost ratio of around 2-3x is workable. So, if his prices are way beyond this, try to get him as close to this point.
5) Also try explaining him how paying such high costs for his product increases the overall costs of your business, which eventually makes it difficult for your business to grow/survive. As you have appreciated the conditions of his business, he, too, will and is then likely to pass on to you any relaxation in the selling price/Qty he is authorized to make.
If you have been dealing with this supplier for long, this in itself helps you gain some relaxation (where there is scope for it), owing to the long relationship and mutual interest in the prosperity and survival of each other's business.
I can tell you this, because I have dealt with Transporters in the Frozen Sector who were (and still are) in somewhat monopoly/oligopoly position and were charging 4-5x of their costs. And our business was in financial trouble for a long time and therefore, was not highly preferred by them. So, had very little scope to negotiate much with them. But, I almost always got some of the best rates. And during this time I realized that, in negotiations, personal rapport is the starting point (does half your job) that helps you begin n keep the talks going and your understanding of their business helps you succeed in your objectives.
24th January 2011 From India , Mumbai