Imagine paying whatever you wanted for all the materials and services you need to run your business. Sounds great, doesn’t it? Guess what, though, this fantasyland may not be as far fetched as it seems. I’ll explain why.

If you look around, many consumer businesses are already saying "pay what you want!" with remarkable success, but it’s not as surprising as it seems when you take a minute to think about it. Let’s take a look at a few examples like Eric Hagen’s startup, Recession Ride Taxi Service which quickly saw enough success to have to expand from his one van to a fleet of three. How about bands Nine Inch Nails and Radiohead who have raked in millions for their albums which were published online, free for the taking, donations welcome. Not to belabor the point, but it’s happening in a wide variety of products and services from bagels to restaurants and even electronic gaming.

So why does it work? It works because the basic principles of economics and capitalism remain intact: buyers who derive value from goods and services are willing to pay a competitive rate for those goods and services to nurture their relationship with their supplier. The supplier, in turn, has given the buyer confidence that they will deliver a reliable offering that meets or exceeds requirements and desires at a price the buyer can feel good about. The suppliers in these "pay what you want" markets are ensuring their pricing is competitive by allowing the buyer to choose what to pay. This allows suppliers to chew into enough competition to remain profitable while absorbing the loss of some of the short changers who they will inevitably avoid in the future, cutting their loss and overall risk.

Now consider how far off this is from an actual RFP. I think you’ll find the differences to be subtle at best. If during your most recent RFP one of the suppliers insisted that you name your price, I bet you wouldn’t feel like you had won the lottery. Your head would instantly spin with questions. What’s fair? How much is enough to keep the supplier profitable while meeting my requirements? How do I assess what amount might be too low, ruining my chances at securing the same arrangement long term? Is it ethical for me to pay far less than the market average and burn my bridges with this supplier for the sake of some short term savings? These and a litany of other questions would need to be considered before you named your price.

During negotiations we can pit suppliers against each other, force suppliers into loss leader situations, and get what we want but at the end of the negotiation how many bridges will have been burned? Many of the same questions above need to be considered. Concessions need to be made. At the end of the day, everyone should feel good about the arrived upon agreement and overall you will have paid what you want.

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David Pastore

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