client wants to negotiate contract (the other story)

I didn’t want to hijack marzz03 thread, so I started my own because I have a somewhat similar situation in my hands, and that post got me thinking…

So here is my problem:
I am running a “one man design firm”. I was recently approached by a big bathroom fixture company, that has never used designers before, and wanted to try it out. They also talked (or so they said!) with some of the big local design firms.
When I met with them, they said they liked my portfolio and offered the following: Do a design test for us, designing “X” bath fixture. If we like what you do, we’ll go ahead and keep working together, if not, we will go with the safer option: One of the bigger firms that already has experience in designing this type of products.
So far so good, but here is the first catch: they said, we’ll take a risk doing this with you, so give us a good price, and that way we will be sharing the risk.
I didn’t have much work at the time and I agreed to their terms.
Maybe I shouldn’t have done so.
When I delivered the designs, they went “bananas”, and I could tell I had largely exceeded their expectations. I handed in my invoice for the price the project should have been, minus a special discount to make it come to the price we had agreed on…This way they already knew what the design really costs, for next time. For your reference, I charged them, only 1/3 of the project`s real price.

Then, they asked me to give them a quote for the complete product familly, and so I did. They said they would enter this in their 2009 strategic budget, and see how they would integrate design on their new collections.

When I followed up, they said (to my surprise) that I was way too expensive, that I was just one guy, compared to the other firms that had many designers, and then not competitive price wise.
Intrigued, I chequed my prices with some other designers I know, and they confirmed that no other design firm would quote as low as I did.

So I AM competitive price wise, but it’s just that these guys seem to be judging my quote, based on how many people would work on the project, as opposed to evaluating my results (that they already know are good)

So, this is the end of a long post…Now I need your advice: Should I consider lowering my price and make it what they want? (they didn’t say how much they want to pay for it, but I fear they might want me to do it for the 1/3 of the price again)

How should I proceed?

HELP!

Thanks a lot.

Gerry