Tuesday 26 March 2019

Don't Prioritise "Value" Over "Value Added"

I was observing a contract negotiation between two parties. The other party’s (let’s call them the “buyer") negotiator was playing the usual game of beating down price and focussing on that alone.

What the negotiator seemed unaware of was that they were not getting the difference between “value” and “value added”.  In this case, the negotiator thought that their objective was to get the lowest (“best”) price, without thinking about the best deal.

The risk the negotiator was taking was that, in their focus on getting the lowest price, they were actually doing two things, neither of which were good:
  1. They were alienating the supplier with their “nickel and dime game”;
  2. They were losing out on other intangible benefits that would actually make the contract work more smoothly.
When I explain that this negotiation was actually a renegotiation of a contract coming to an end, in which the supplier had done a lot of work outside the scope of the original agreement, the negotiator’s stance was clearly not going to help. The supplier was clearly feeling unappreciated and not respected.  The buyer’s representative could see what was going on, but was “under orders” not to interfere.

The conclusion was that:
  • The supplier left feeling aggrieved and determined to stick to their guns;
  • The negotiator thought they’d done their job well;
  • The buyer clearly was going to get the “bare minimum” for their buck.
This is where the concept of value added comes in.  In every contract, one usually finds instances where the “supplier” of the service may throw in little “extras” that aren’t part of the contract, but help things run smoothly for their buyer.  These may be, for example, services that aren’t covered in the terms or scope laid out in the contract, but add value and/or save money for the buyer.  

Occasionally, it’s better to preserve the goodwill of the other party, as well as leave room for the “value added” from that goodwill by knowing when to stop (as long as you’re comfortable with the price).  In the long term, everyone’s in business to do well, but by frustrating this, there’s a risk of losing valuable “hidden benefits” as well as supplier goodwill.

This extends to other aspects of business, such as how one treats staff, equipment, premises and any number of other aspects.  Skimp on these, and customers and staff will notice.  It'll show in staff attitude and (worse) reduced customer service.

In the end, the motto "You get what you pay for" is one to remember.


I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My websiteprovides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

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posted by William Martin @ 09:05

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