Friday, 3 August 2007

Business Principles: The Price is the Price

I just got off the phone with a supplier.

We have had some product on order and it has come in. We are leaving for a break until late next week, so we needed to put the order on hold.

The prices on the product have changed since the order was placed.

So, the price we now pay has changed also.

I mentioned to them that changing the price we pay was wrong. It does not matter if the prices go up or down in the interim between the time we ordered the product and when they receive it to send it to us.

The price is the price

"Oh", says my supplier contact, "people whine and complain if the price drops so we give it to them".

Wrong answer.

You don't give it to them. Ever!

We live and work in an industry that has traditionally had wildly fluctuating prices. Lately, those fluctuations have not been nearly as wild, but they still change.

By whining and complaining about that price being lower, one has not, in my opinion, stopped to think about the process of that transaction.

Here it is:
  1. Purchased Gizmo A for $100 from the supplier.
  2. Supplier buys Gizmo A from the manufacturer for $80.
  3. Supplier receives Gizmo A from the manufacturer.
  4. Gizmo A has since dropped in price to $75.
  5. We pay for and the supplier sends Gizmo A to us for $100.
That is the proper order of the transaction.

Now, what happens when Company B Owner whines and complains about Gizmo A's price drop and expects to receive Gizmo A for the $75 price instead of the original $100 price?

Pretty obvious isn't it? The supplier takes the $25 hit if they bow to the pressure put on them by the Company B Owners.

It is the Cost of Doing Business if prices change in a direction we don't like. We eat it as we should.

The same goes if prices head up. Do we turn around and up our already quoted prices to our clients?

In the end, it actually ends up costing us more for products. The suppliers will need to make up for that $25 hit and any others like it. So, to make up for it, product prices get artificially inflated to cover the risk.

How we handle pricing says a lot about us and our business and who or what we are in it for.

Philip Elder
Microsoft Small Business Specialists

*All Mac on SBS posts are posted on our in-house iMac via the Safari Web browser.

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