The difference between value and price may seem obvious to many people, but I have found when a buyer and seller (customer and sales person) are in discussion regarding a service or product that is being considered, most of the dialogue is about price. As we are all aware, price is important but often there are other points relating to services or features which could significantly impact your level of satisfaction if they are overlooked when finalizing a price.
Richard Rafdahl – President of Cost Reduction Specialists Inc.
Quite often we apply the basics of value analysis when we make the simplest purchases. For example, if you want to purchase a gallon of milk you may automatically check the date of expiration. Is there a (longer term) expiration option in the dairy section, if you reach farther back? Is there a discount coupon available for you to use? Is there a special offer if 2 gallons are purchased vs. just one? These are modest considerations that may be routine when you are shopping but they do help ensure you are making the best value decision possible.
On the other hand, when considering a large purchase it is not uncommon for the buyer to become excessively focused on price. I believe this is due to the size of the expenditure but also because price is what the management (or peers) will initially grade him/her on. For example, your spouse, your friend or your boss will likely ask one or more of the following: “What is the price you agreed upon?” “How much is this going to cost us?” and “Is that the best price you could get?” All valid questions but they really don’t address everything that is probably expected for that price.
First, it is very prudent to know your budget and approximate amount to invest but it is equally important to do a thorough due diligence so that you have a clear understanding of all your (business) expectations, requirements and what options are available – or risk a “buyer beware” situation.
For example, when considering your short list of preferred suppliers, you may want to research their quality, reliability, customer service, delivery performance, warranty, return policy, payment terms, sales representation, rebates, invoice accuracy, packing slip information, freight terms, price change methodology and timing etc.
You may even want to contact some of their customers as a reference check regarding their performance and track record. Again, price is important but every point listed may be critical and could completely derail the program if just one is not to your company’s satisfaction. For example, you may have secured a great price, but if you frequently receive shipments with numerous backorders – this could create huge problems for your sales staff, customers, service levels and industry reputation. What if it takes weeks to solve a quality problem? This could prove disastrous with a client relationship. In essence, each of these issues could significantly impact your business’s credibility, reputation and success.
The real key when establishing a great value-based program for your business, is to do your homework. Put a list together of the most important requirements that you have. When negotiating address all your expectations up front and only when both parties have a full understanding and agreement of what is expected, should you discuss price. Then document it in an agreement.
In summary, securing the lowest price may seem most important but securing the best value is really the optimum goal. A Good Value encompasses all your expectations – at the best price possible.