Setting Target Prices: Based on Evidence
How should target prices for hardware structural components be set? They should be determined based on specific criteria: cost estimation (calculating the cost), market reference (using market benchmarks), budget constraints (setting an upper limit), and negotiation room (allowing for bargaining flexibility).
Industry experts advise that setting these target prices requires an evidence-based assessment: cost estimation (establishing a cost baseline/floor price), market reference (comparing against market benchmarks/current rates), budget constraints (setting a budget cap/red line), and negotiation room (planning for bargaining strategy/flexibility).
Basing decisions on evidence prevents arbitrary pricing.
Evidence-Based Determination
- Cost estimation: Calculate costs first;
- Market reference: Compare against market benchmarks;
- Budget constraints: Set a budget cap;
- Negotiation room: Allow for bargaining flexibility;
- Evidence-based determination: Set target prices based on evidence to avoid arbitrary decisions.
Key Assessment Points
First, calculate costs first.
Determine the cost baseline to avoid pricing without a foundation.
Second, compare against market benchmarks.
Check current market rates to avoid unrealistic pricing.
Third, set a budget cap.
Establish a spending limit to prevent cost overruns.
Fourth, allow for negotiation room.
Build in flexibility for bargaining to ensure there is room to maneuver.
Pitfalls to Avoid
First, avoid “arbitrary guesswork” (risk);
instead, set prices based on evidence.
Second, avoid “having no bottom line” (risk of price gouging/loss);
instead, set a budget cap.
Third, avoid “leaving no room for negotiation.”
Negotiations are difficult (deadlock);
focus on securing volume through pricing strategy.
Trends and Reminders
Target pricing is becoming data-driven: characterized by digital cost modeling and real-time market transparency.
For procurement teams, the recommendation is to “base decisions on data, set firm budget limits, and build in sufficient flexibility.”
Accurate target pricing provides a solid foundation for negotiations.
