ABCs of price vs. value: what first-graders can't tell you about cost of ownership

Circuits Assembly, August, 2008 by Chrys Shea

When it comes to equipment sets and process chemistries, a broad spectrum of suppliers have corresponding price points on their products. One of the first things I learned about marketing was that before an organization tries to sell its first widget, it must decide if it wants to be a cost leader or a product differentiator. Trying to do both is a death wish. Regardless of whether the product is processing equipment or chemistry, it has been my experience that the low cost suppliers provide products that do not perform at the same levels as those of the higher cost suppliers--the old "you get what you pay for" principle. It also has been my experience that, while the low-cost providers sell on price, the higher cost providers sell on value, and can actually provide the recipes to help demonstrate the value of their products and justify their higher prices. We refer to these algorithms as Value In Use (VIU) tools. If considering procuring new equipment or changing process chemistries, ask your supplier if it can provide you with VIU tools; you'd be surprised how many organizations have these available. Even if the local sales representative is not familiar with them, it's likely that, if the company marketing the product is positioning itself as the value leader, it has created these tools and is just a phone call or email away from helping you write your value equation.

This month's lesson learned? If you want to upgrade your process in a way that brings your organization the most value, it will take some investigating and a little legwork. You'll need to enlist some support: The supplier can likely help you write the price versus value equation, and the cost accountant can certainly help you solve it. On the other hand, if you simply want to upgrade your process based on the lowest possible acquisition price, that's a lot easier. Just get a couple quotes and consult with a first-grader.

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Chrys Shea is a former engineer at Motorola and R&D applications engineering manager at Cookson Electronics. Her column appears monthly.