Getting What You Pay For

prices_robbyvirusWhether you’re at the shopping mall or negotiating a contract, there’s no truer saying than “you get what you pay for.” But even more important are some related questions, like “Do you really know what you are paying for?” and “Do you know why and how you are paying for what you are getting?”

That’s why I’m happy to announce the publication of the latest Vested White Paper, “Unpacking Pricing Models: Make ‘you get what you pay for’ Real for Business Relationships.”  It’s produced by the University of Tennessee Center for Executive Education and the Sourcing Interests Group.

The 42-page report—available as a free download from the Vested website—answers the thorny questions surrounding pricing and pricing approaches that confront every business relationship, whether new or existing.

That’s because virtually no other topic creates as much apprehension between a buyer and a supplier as trying to negotiate a fair price for a product or service. The reason? Simply put, “the process for establishing pricing between buyers and suppliers is broken,” as the report advocates. How so? At the heart of the misalignment is the fact that “conventional sourcing business models typically result in the buyer company and their supplier establishing a “price” that reflects the circumstances at a point in time when the business agreement is established.”

Our premise is that the “price” by itself does not respond to changes in workscope, the market or in corporate strategy. We also note that many companies do not take the time to use more advanced sourcing business models and pricing mechanisms that are designed to keep a buyer and supplier relationship in equilibrium as “business happens.” This implies that a collaborative “pricing model” formulated by the parties, rather than “the price,” will set the tone for a realistic and fair pricing strategy.

The paper has three sections, summarized as follows:

– Section I defines and explains the array of tools available in the business professional’s toolkit, with the goal to help buyers and suppliers understand the nuances of the various approaches available to help craft great deals. Six common questions that organizations often struggle with are addressed.

Section II reviews in detail the art of aligning the right pricing mechanisms with the right sourcing business model; this is a key success factor in eliminating unwanted perverse incentives that often occur when companies use an improper combination of sourcing business model, compensation method and pricing approach.

Section III challenges buyers and suppliers to negotiate prices with a different lens. Transparency and an approach that encourages the parties to have deeper and more meaningful economic discussions will expand their agreement zone with one based on shared risk and shared reward—not simply shifting risk.

So your toolkit, an understanding of the proper model, and a different lens—the Vested way—will take you to a pricing approach and deal that reduces angst, while truly giving you what you pay for.

Image: Prices Home Furnishings, Las Vegas, NM by Robby Virus via Flickr

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