Contract pricing â is this always the best approach?

We came across a rather interesting article from John Roche of Haybrooke Associates on LinkedIn a few days ago, debating the merits of contract pricing, and felt like sharing and discussing his insights on the matter.

In the article Roche discusses how, whilst contract pricing may seem to make sense and appear to be useful way to get a competitive fixed price from a supplier, this may not necessarily always be the best approach. Although the printing industry is in decline and it is not yet known exactly when the industry will completely fade, it does mean that the price of print will never increase – so contract pricing may not be the best option for buyers.

Roche offers an analogy to back up this fairly bold claim: imagine the UK printing supply chain falls to 20% of its current numbers by the year 2100, but then stabilises. Going off current printer figures (there are around 8,000 in the UK at the moment), that leaves 1,600 printers. Although this is a significant drop, it is over a fairly long time-frame and during this time demand for print will remain roughly the same; the remaining 1,600 printers will survive thanks to making present investments in the company, meaning they are the most capable of surviving in the future. Judging by the figures already mentioned, in the year 2100 the remaining print companies can expect an average turnover of £7.5 million each. But, it does mean misery for literally thousands of other printers going out of business. It is unequivocally a buyer’s market in the printer sector.

So how does this relate to print buying and contract pricing? Some of the reasons why print buyers like contract pricing is because it means they can demonstrate how much money they are saving their end clients, it allows them to include pricing in budgets and means they can provide quotes to end clients quickly and easily, with pre-agreed contract prices secured.

The problems here revolve around the fact that this is a buyer’s market and in a buyer’s market prices do not go up. That said, it often means buyers can source cheaper prices elsewhere in the market. Also, for contract pricing to work a buyer needs to know the price of products in advance – considering the vast array of products and services available in the printing industry, this can be difficult to determine in a fluctuating market. This, as a result, requires a lot of admin and rarely makes the contract worth it.

With these points in mind it means a market price is often far more competitive than a contract price in the printing industry. If you would like to know how BMC can offer the sustainable, capacity purchasing technology that Roche is referring to, please get in touch.

What do you make of the points raised in this article?