Something resembling this conversation is happening right now…millions of times a day:
Customer: It’s time to renegotiate our contract for next year.
Vendor: Yes, glad you think that. You know the price of oil has gone up, healthcare costs have increased, supply chains are still volatile, and geopolitical issues are driving a 15% price increase.
Customer: Uh, that’s not the direction we’re going. Many of our other vendors are leveraging AI to reduce costs and lower their cost of goods sold. We expect you to lower your prices by 15%.
And there you have it.
Your customer just told you that your costs are going down. Even if they aren’t.
And of course, the big question is: “Is that actually true?”
Like most companies, you’ve been experimenting with AI. You’ve seen flashes of efficiency. Maybe some productivity gains. Maybe even pockets of cost reduction.
But you are probably not in a position to confidently say:
"Yes, we’re cutting our prices by 20% because AI has transformed our cost structure."
So now what?
Based on conversations with leaders across industries, and what we’re seeing in real time, here are five critical considerations when your customers start pricing your AI benefits for you.
1. Don’t Confuse Potential with Realized COGS Reduction
Your customer is pricing in the promise of AI, not your actual financials.
There’s a massive difference between:
Until AI is deeply integrated into:
…it is not structurally reducing your COGS.
This is where business acumen matters. You need to clearly understand and be able to articulate the difference between:
If you can’t explain that difference, your customer will happily assume the most aggressive version.
2. Your Customer Is Benchmarking You—Whether You Like It or Not
The uncomfortable reality: your customer may not be wrong.
Some competitors are:
And they are using that advantage to win business.
So this is not just a pricing conversation. It’s a competitive positioning moment.
You have three choices:
What you cannot do is pretend the conversation isn’t happening.
3. If You Don’t Tell Your Cost Story, Your Customer Will
In the absence of data, customers create their own narrative.
And right now, that narrative sounds like this:
“AI is making everything cheaper, so your prices should go down.”
Your job is to replace that narrative with a more accurate one:
For example:
This is not defensive. This is strategic storytelling grounded in financial reality.
4. Be Careful About Passing Through 100% of AI Savings
Let’s say you are generating cost savings from AI.
The instinct, especially under pressure, is to pass those savings directly to the customer.
That can be a mistake.
Why?
Because AI is not just a cost lever. It is a strategic capability investment.
Those savings might need to fund:
If you immediately give it all away in price concessions, you may win the negotiation…
…but lose the long-term competitive game.
Smart companies are asking:
“What portion of AI-driven savings should go to the customer vs. be reinvested in the business?”
That’s a much more sophisticated conversation.
5. This Is Not a Pricing Problem, It’s a Business Model Problem
At its core, this is bigger than negotiation tactics. AI is forcing a fundamental question:
What is your business model in a world where certain costs can go down dramatically?
If your model is purely cost-plus, you are exposed.
If your value proposition is:
…then you have room to maneuver.
The companies that will win are not the ones that simply lower prices fastest. They are the ones that:
Final Thought: Your Customer Just Gave You a Strategic Wake-Up Call
When a customer tells you your COGS is going down because of AI, they are not just negotiating.
They are signaling a shift in expectations:
You can push back on the number. But you shouldn’t ignore the message.
Because whether it’s true today or not…
At some point, it will be.