Price Analysis a Sustainable Method of Price

Price Analysis

A Sustainable Method of Price Analysis

As a person involved in business at the leadership level, at the acquisition level or somewhere in the supply chain requiring procurement decisions, pricing will be an issue of the utmost concern. Indeed, it is particularly useful for one in this position to possess a default strategy for price analysis that can be used to navigate a wide variance of business and acquisition scenarios. For this reason, the discussion here offers a price analysis methodology with the appropriate versatility to serve in this capacity and, consequently, provides a rationale for this discussion. Accordingly, we propose that the Comparison of Competitive Bids is sufficiently effective and universal as a standard for price analysis that if one were confined strictly to its usage through the duration of one's career, one might still be sufficiently served.

The method of Comparison and Competitive Bids holds perhaps more than other price analysis strategies that natural market behavior is likeliest way for a buyer to receive a fair price. Accordingly, this strategy denotes that "By asking three or more suppliers of their prices for the same product, we can determine if a particular price is reasonable. However, this does not preclude total cost analysis. The lowest bid may not always represent the lowest cost. The total cost of acquisition must be analyzed. There may be cost associated with making the lower cost product perform to standards, the additional cost of early replacement or the cost of redesign and/or testing required to make the lower cost product applicable. This 'total cost of acquisition' is the real cost that must be compared." (WHOI, p. 1)

This definition for the selected price analysis methodology calls for several key conditions. Particularly, this strategy denotes the presence of or opportunity for a competitive environment. Such is to indicate that in contexts where no such competition exists, it may be difficult to effectively conduct the type of analysis in question. This denotes that Comparison and Competitive Bids approach is inherently driven by open and free market conditions. But this in and of itself is a useful point of consideration. Indeed, where business leader, decision-maker or procurement personnel find conditions that do not support this type of analysis, it may be concluded that improper conditions exist for competitive pricing. As a consequence, it may be concluded that pricing fairness will be difficult to attain and may serve as a cautionary reality as one enters a particular business endeavor.