Defining value through pricing
Tuesday, 3rd April 2012
By looking at pricing for a lot of different vendors and products submitted through the FreePint Research Benchmarking on Pricing project, three main approaches to price modeling emerged. This four-part series examines these models and discusses how a buyer might approach negotiations over products offered under that pricing model.
When acquiring content, information managers are always seeking value for money on behalf of their organisations. Price negotiations with content vendors are an exercise in coming up with a contract amount that appropriately reflects value to both sides of the deal.
To make the most of negotiations, it’s essential for buyers to understand what “value” means to the vendor, as well as to their own organisations. By understanding what vendors value, and how they express that value through pricing, buyers can enter negotiations from a position of knowledge.
FreePint Research has piloted a number of benchmarking projects, including Benchmarking on Pricing, a confidential process through which content buyers can determine how well their content contracts reflect current pricing norms. Blind data submission produces a pool of aggregated data, from which benchmarks can be established for pricing based on size, industry, product features and location.
An unexpected additional benefit of this project has been enhanced understanding of the basic pricing philosophies that different vendors apply to contract negotiations. By assembling a lot of data in the same format for a range of vendors, FreePint Research has been able to spot patterns in approaches to pricing. These patterns highlight what vendors invest in when building their products, or in other words, what they value.
Three main approaches to pricing have emerged as a result of comparing benchmarking results (each of these is the focus of a FreePint Features article; click to read):
- Value metrics: based on multiplying seats, content sets and product features in a reasonably consistent way
- Delivery framework: accounts for underlying content but focuses primarily on the delivery mechanism – the user interface, workflow tools or function-specific framework through which users access the content
- Consultative: starts from a detailed understanding of buyer’s desired outcomes and then builds a comprehensive solution, based on core functionality, content and integration
Each of these approaches to pricing reflects a different investment on the part of the vendor, with different risks involved. The more you as a buyer understand these investments and risks, the easier negotiations are because you already share an understanding of the vendor’s stake in the contract.
Additional Features articles explore each of these approaches in greater detail, helping buyers understand what vendors invest in and therefore what they are more or less likely to give way on during contract negotiations.
Learn more about FreePint Research's benchmarking projects and request information about participating.
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