price tag

The Price Is Part Of The Cost

The values that we are brought up with at home, school and in the work place help determine how we make decisions. These core values influence purchasing decisions and are especially important when evaluating suppliers to better understand how they can add extra value beyond just a price differential.

Whenever you want to buy something the first thing you’ll most likely do is to find out the price of it. Once you know the price you’ll start doing lots of different calculations in your head that will answer questions ranging from; is it affordable?, is it a fair price?, can I get a better price elsewhere?. We are taught form an early age at school that the price of anything is important and the lower the better. Add to this later, when learning how to calculate percentages, am I getting the biggest discount to make the price that much sweeter!

Basic economics

The price that is both charged for something and that you are prepared to pay for it is determined by a variety of different factors which in their most basic form of economics is driven by supply and demand. In today’s world there are many factors that influence these, including marketing, geographic location and politics.

Perceived value received

A key part of the price that you are prepared to pay for something is the perceived value that you receive from any good or service.  This will differ from company to company depending on what their requirements are, and this will be down to a variety of reasons. It is this perceived value that heavily influences why companies use different suppliers for the same product.

Price is part of the cost

The cost of a good or service is the overall consideration that is paid, usually financial, that is made up of more than the actual price itself. It is all the intangibles that are sometimes difficult to measure in monetary terms that will be calculated in a variety of ways by different companies. It is an important consideration when looking at other factors apart from just the price, they may include anything from time saved using the product to the the supplier’s environmental impact.

The cost will vary from supplier to supplier

Selling the difference between price and cost is becoming an increasingly important part of marketing used by many suppliers to differentiate themselves from their competition beyond just pricing structures. The suppliers will have established their own core values which they believe contribute to the overall cost paid by their clients and that deliver a value-add to their customers.

In conclusion

The price that you pay for any goods or service is a key component of any purchase. However, it is important to remember that you may want to think about other considerations that help to deliver real value to you based on what’s really important to you and your company to get the best out of your suppliers.

To learn more about how you can put your company’s core values at the heart of all your sourcing, contract and supplier management activities go to oboloo.com. oboloo enables you to be supplier smart.  

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