Most favored nation pricing for small business refers to pricing or other conditions set forth in a contract, that allows the purchasing company the benefit of favorable pricing. It allows the purchasing company to b e able to purchase goods for at least the same price or lower as other companies are purchasing the same goods or services.
The reason why it is called most favored “nation” pricing is because the term originally came about regarding international trade.
“While the Most-Favored-Nation (MFN) clause has a long history in international trade agreements, it is perhaps best known as a founding principle of the General Agreement on Tariffs and Trade (GATT). It states that “...any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.” What is remarkable (and sometimes controversial) about this clause is that it is general and unconditional—once a country becomes a member of the agreement, it is entitled to MFN treatment from all other members, regardless of its behavior. The signing of the GATT in 1947 arguably represents the high water mark for the MFN clause; both in terms of its intended scope and the level of support it enjoyed from participating countries. The United States was an especially strong proponent of the general and unconditional wording of GATT’s MFN clause (Gardner, 1956). Prior to 1923, the US had used a conditional form of MFN. Under conditional MFN, if a country grants a preferential tariff rate to another country, then it must extend the same rate to its MFN partners only if they “pay” for it with reciprocal tariff cuts. Under the unconditional MFN in GATT, no such reciprocity is required.”
Here is a good example of a clause that uses most favored nations pricing for small business
The reason why it is called most favored “nation” pricing is because the term originally came about regarding international trade.
“While the Most-Favored-Nation (MFN) clause has a long history in international trade agreements, it is perhaps best known as a founding principle of the General Agreement on Tariffs and Trade (GATT). It states that “...any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.” What is remarkable (and sometimes controversial) about this clause is that it is general and unconditional—once a country becomes a member of the agreement, it is entitled to MFN treatment from all other members, regardless of its behavior. The signing of the GATT in 1947 arguably represents the high water mark for the MFN clause; both in terms of its intended scope and the level of support it enjoyed from participating countries. The United States was an especially strong proponent of the general and unconditional wording of GATT’s MFN clause (Gardner, 1956). Prior to 1923, the US had used a conditional form of MFN. Under conditional MFN, if a country grants a preferential tariff rate to another country, then it must extend the same rate to its MFN partners only if they “pay” for it with reciprocal tariff cuts. Under the unconditional MFN in GATT, no such reciprocity is required.”
Here is a good example of a clause that uses most favored nations pricing for small business
At no time during the term of this Agreement will Supplier sell Common Materials to Mentor at Unit Purchase Prices which, on average, exceed the Unit Purchase Prices charged to any Major Competitor for all such Common Materials during such Year, taking into account only Mentor's (and not Major Competitor's) purchase volumes of such Common Materials."
These types of clauses do not just have to apply to pricing however, they can apply to any other terms and conditions that a purchaser wants to guarantee it will always have available to adequately compete with its competitors doing business with the same supplier or manufacturer. Here is another good example of most favored nations strategy that applies to terms and conditions:
The Manufacturer hereby represents and warrants to Distributor that none of the terms and conditions concerning the purchase of the Manufacturer’s Goods offered to any third party purchaser, is or will be more favorable to such third party purchaser than those of the Distributor."
So, a most favored nation pricing for small bus clause really is about getting fair pricing, terms, and conditions. Sometimes you don’t know you can get the same terms as your competitors unless you ask. Contracts are all subject to negotiation, as any shrewd business person or attorneys knows.
Is There Really Most Favored Nation Pricing for Small Business?
Unfortunately, not all small businesses are going to be able to negotiate with a large manufacturer or supplier such favored pricing or terms. The reason is because so much depends on volume. The more your company buys the bigger discount you can negotiate on the price and the better terms you can get, like free shipping. Smaller companies cannot get most favored nation pricing, unless they are negotiating with a startup company or brand that is trying to grow. There may be some other negotiation points though so explore what the supplier, manufacturer or distributor needs from you besides large orders. Opening a new territory or spending more on advertising and marketing to promote their products might be enough to get you the pricing you are looking for, even though you don't meet minimum purchasing requirements.