Merchant
San Diego CA
(This post was last modified: 12-10-2020, 09:47 PM by Blackland Razors.)
(12-10-2020, 09:19 PM)Marko Wrote: Thanks Shane Blackland Razors , that's exactly what I was looking for.Pricing is complicate and multi-faceted. You touched on subjective perception / psychology of price points and numbers which all play into the decision. Its not always having the best product that will win you the day - business model plays into it sometimes too. I spent 30 years or so working legal in large (some very large) oil companies and did a fair amount of procurement/supply chain management work and I've come to understand that sometimes in business its not always a good idea to grind your counterparties/suppliers to the bone. If you end up putting people out of business because you've been so demanding in negotiations that's not great. Sure you may have beat them at the negotiating table and got a nice bonus but what happens when there are fewer players in the marketplace and now you can't get the materials or services you want at all, at any price because your competition got there first and maybe left a little on the table for the contractors. Who's the winner now?
My favourite procurement experience was a number of years ago when all the big companies wanted to get their suppliers signed up to Master Service/Supply Agreements - agreed upon Terms and Conditions so all you had to do was sign a service order/purchase order and stuff happens. The big guys used their market power to leverage these agreements. If you want to work for us you'll sign this agreement. Two things - first (and my favourite) was when they approached the Well Control contractors - these are the guys that put out oilfield fires, cap blowouts and generally clean up the messes that sometimes happen. There aren't very many of them and the work is extremely hazardous. So the Company says if you want to work for us you'll sign the MSSA including a fee schedule. The well control guys laughed and said no thanks. What? Don't you want to work for us? They replied, sure we do and when you need us give us a call and we'll tell you the terms and the fees we'll work for and you'll pay it. When you're a firefighter for hire you don't negotiate contracts when there is no fire. Second favourite was same drive to sign MSSAs this time they got agreements and day rates in place with all the drilling contractors for drilling rigs. Well, drilling rigs are a long lead time item and there is a practical limit to the supply so when the company calls the drilling contractor and says we need rigs under the MSSA they get told there aren't any rigs available. Gasp! Why would that be?? Well, how about because your competitors are willing to pay us a higher day rate than you are. Take your MSSA and...sometimes when you want to have your cake and eat it too somebody else got to the cake first and ate it and there's no cake for you. And no bonus either.
Lol yup. It gets complicated and there really isn't a way to do it "right". "Right" just means you're still in business tomorrow.
Another good example of this kind of psychology game is with loss leaders where companies sell products they lose money on because it gets people in the door either by buying other things along with the loss leader or by thinking more highly of the brand overall and then buying something entirely different. Cars like the C8 Corvette are good examples of this. It will take years for that project to break even and there's a good chance it never will. Chevy has decided that's okay because they make their real money on other products and the C8 is their halo car meant to advertise the brand rather than generate direct profit. So, in a sense, every Tahoe or Equinox owner is subsidizing the C8. Free shipping is sort of like that. Shipping can be thought of as a product so free shipping is a mini loss leader that we make up for by selling other higher-profit items.
