Pricing

Pricing as a Business Process. Pricing is an iterative process. In outsourcing, the iterations start early and continue throughout the entire lifecycle of the outsourcing relationship.

Unique Pricing Issues in Outsourcing. In transparent markets with large numbers of transactions in commoditized goods or services, supply and demand are regulated by prices established by many buyers and sellers.

In outsourcing, price transparency is difficult to achieve. Several factors hinder price transparency in outsourcing:

  • the relatively small number of transactions per market (or, otherwise stated, the large size of each transaction relative to each market participant);
  • the customization of the service offering to the customer’s particular economic model, geography and regulatory environment;
  • long-term commitments;
  • services delivered by a complex web of hardware, software, telecommunications and people;
  • services changing subject to customer needs, regulatory frameworks and other external conditions;
  • service levels setting minimal quality criteria;
  • bundled pricing for multiple services; and
  • contingencies and risks of the businesses of both customer and service provider, including mergers, acquisitions, divestitures, currency exchange rates, inflation, technology improvements, business cycles and uncontrollable external events.

Every situation has its own special conditions.

The full article on pricing in outsourcing outlines key parameters defining the pricing process in outsourcing relationships. It includes pricing structures, basic pricing analysis, pricing assumptions and hidden costs.

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