Back to basics – the difference between price and cost

Posted by Pete Loughlin in Purchase to Pay, Purchase to Pay Process 26 Oct 2014

When implementing Purchase to Pay, the strength of the objections to change can be surprising. People prefer paper. They don’t want to change. They want things immediately and they refuse to follow new processes. They think they can get a better deal themselves compared to the prices offered on a supplier catalog.

It’s been the same for years – decades even – and it’s that last objection: “I can get a better deal myself” that can be the most difficult because it is – or more precisely appears to be – a valid objection. So how do you overcome it?

Purchasing Insight logoHave you ever played Russian Roulette with eggs? Get 6 people and half a dozen eggs, 5 of them hard boiled and one raw. Everyone selects a single egg and in turn has to smash the egg over their head. A hard boiled egg will cause little if any damage but the raw egg is another matter.

Objections are like eggs. Most of them are hard boiled and can be ignored. Carry on regardless and there will be no real consequences. But occasionally they are raw – ignore them at your peril. The price objection is a real objection and it needs to be handled properly and with sensitivity. If a central procurement function is demanding that the business comply with centrally agreed contracts, that had better represent a good deal because it’s not procurement that has the headache of managing the local budget. Travel is a very good example of this. Use the travel booking system and you get one price for a flight or hotel room but go online and it doesn’t take too long to find a better price. Which deal do book?

The key to overcoming this objection is to understand the difference between price and cost. The price of a good or service is just the headline figure. There is always other costs. How much time did it take to find that better travel deal? That’s not “free”. Is insurance included and if so, what level? What happens if the traveler cancels or changes plans? Is breakfast included in the room rate? Is the room or plane seat guaranteed? What terms and conditions prevail if you don’t raise a P.O?

I’ve seen many times, the same person that claims to be able to get a better travel deal conveniently forgets to brag about their sourcing skills when they’re claiming expenses for the breakfast that wasn’t included in the price or worse, claims for a trip that didn’t happen because their so-called better deal was pay now non-refundable offer.

Booking your own travel is like fitting your own kitchen. An expert will get it fitted better and quicker. Do it yourself maybe satisfying but it takes time and your time isn’t free. Will the price of the kitchen be less? Of course it will. But the real question to ask is will it cost less?

Pete Loughlin can be found on twitter @peteloughlin

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