Posts Tagged ‘Total Cost of Ownership’

Service buying is not at all like product buying.  Users very often just care about the final objective or the result but they don’t care about the fine prints,.   It’s like we subscribe to a mobile service plan for 2 years but we have not expected to wait for 3 hours for the customer service hotline or have to queue up for 45 minutes at the retail branch.  All this is costly to us as consumers.  Furthermore, we get unnecessarily influenced by various “freebies” like movie tickets, supermarket coupons, extra talk time, mobile entertainment channels etc. during our selection process.  Do we really need these perks?  Not really.  All we want is actually a mobile service plan with enough voice, data and test usage we need.

Same sort of mistakes takes place in the corporate buying world.  In order to pad up the prices suppliers often include a variety of value-added components to the original requirements in order to make a higher profit.  Companies are not buying; they are often being sold to.  The solutions are bundled together like the McDonald’s value set meals.  My job, is to tear them apart to the bare essentials, unless my clients do indeed need the other perks, and most importantly, have the extra budget for them.

That is why we often joke about users not knowing what they want in the first place.  They want EVERYTHING, but more often than not they cannot afford it.  I am there to help them break down their requirements into “Must-haves” and “Nice-to-haves”.  Users generally hate to put anything into the latter category, but I am there to break the bad news to them: Everything has a price.  If you want 24 X 7 support, it will cost you.  If you want someone to be personally looking after the project for you 30 hours a week, you have to pay for his or her hourly rate. 

It is indeed harder than it looks since the users are not necessarily too knowledgeable with how the service providers function, and hence feeling uneasy drawing such distinction, and in many cases are in constant fear that they will be taken advantaged of.  So will I.  For new commodities I seldom know any more than the users on the subject but I will be the fact finder for my clients.  I do quick research on the subject, talk to suppliers and get as much market intelligence from them, and most importantly, ask the right questions. 

When users do not know exactly what should be the service levels, I ask them what NOT they want to see or happen.  They don’t know how many hours the customer service hotline should operate, but they know operating for only 6 hours a day is not enough.  They don’t know what the servicing turnaround time should be, but they know their customers cannot wait any longer than 48 hours.  You get the idea.  Through these questions I now have a list.  With all these specifics, I will then be able to lay it out for the bidders and ask them to price exactly according to my “must-haves” list.  Then I can do a fair comparison, and I will NOT be sold to.


Pricing is not the only thing that matters.  There are also payment terms, pay-by-performance metrics, reporting, operating cost, manning arrangements, insurance, indemnity, compliance and all other policies and regulations that my clients need to follow according to corporate guidelines.  Every cost component adds up to the total cost, and that’s what we call Total Cost of Ownership (TCO). 

Well, to-date people are still shocked to hear me asking “What do you NOT want?” 

Don’t be naive, folks.

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