Data processing: financial – business practice – management – or co – For cost/price
Reexamination Certificate
1999-07-28
2001-05-01
Cosimano, Edward R. (Department: 2161)
Data processing: financial, business practice, management, or co
For cost/price
C705S030000
Reexamination Certificate
active
06226625
ABSTRACT:
FIELD OF INVENTION
The invention relates generally to the field of pricing methods and more particularly to a pricing method that generates pricing of a provider's goods and services provided to a customer (the “offering”) based upon a fair market price for goods of a commodity nature plus a sharing of the savings realized as a result of the customer implementing the provider's offering.
BACKGROUND OF THE INVENTION
Providers of goods and services expend great efforts in determining how to best price their goods and services. Providers of goods of a commodity nature (sometimes referred to as “parity products”) are forced to price their goods at or below similar goods from competitors. That is also the case for providers of services that are of a commodity nature (sometimes referred to as “parity services.”) In the case of completely new, proprietary products and services (“non-parity goods/services”) provided in competition with commodity products and services, particularly in business settings as opposed to consumer settings, determining the value of the provider's goods and services to the buyer is helpful. If the customer (or potential customer) perceives the pricing model as being too expensive or having unattractive terms, the customer (or potential customer) may opt to look elsewhere or forego the goods/services. The customer's perception of the value of the goods/services is not static, and is influenced by a universe of constantly changing variables. Some businesses base their buying and procurement decisions largely on the lowest price for a commodity that meets the specification of the buyer or the payback period of the investment. Different customers also have different degrees of risk aversion. While some customers are willing to make more risky procurement decisions in order to maximize profitability, other customers are highly risk averse, and prefer avoiding risk if possible, even if this results in decreased profitability. All of these factors add complexity to the pricing process.
Traditionally, pricing of commodity goods and services in a business setting is arrived at by a bidding process and pricing of completely new, proprietary products and services is arrived at by negotiations between the provider of the goods and services and the customer. Further, traditionally, pricing of completely new, proprietary products and services in combination with commodity products and services is arrived at by negotiations between the provider and customer. After some back and forth, hopefully a meeting of the minds will result. Unfortunately, rather than building a sense of cooperation between the provider and customer, sometimes these negotiations can engender negative sentiments, particular if the transaction is not considered completely fair to both sides. Changing market conditions can force the seller and buyer to repeatedly reevaluate the pricing and other terms.
Accordingly, there remains a need for a pricing model and mechanism that assists the provider and customer at arriving at a mutually agreeable pricing structure that is flexible and responsive to market conditions, and that helps the parties establish equitable pricing of new goods and/or services in a manner that engenders a mutual feeling of cooperation and partnership. There is a further need for a pricing model that appeals to risk averse customers that desire a pricing structure that guarantees the customer that the decision to obtain goods and/or services from a provider will result in tangible and ascertainable economic benefits to the customer.
BRIEF DESCRIPTION OF THE INVENTION
The invention provides a pricing model and mechanism, termed the “Value Sharing Model”, that guides the provider and customer at arriving at a mutually agreeable pricing for particularly identified goods and/or services (hereinafter the “offering”). The Value Sharing Model is based upon a concept of sharing the savings and other economic benefits resulting from the customer's use of the provider's offering.
Under the method of the invention, the provider and customer will first establish a Value Model. The Value Model is a set of equations, both linear and non-linear. Each equation is designed to estimate the value to a buyer of a specific benefit achievable from use of the provider's offering. The Value Model sets forth various aspects of the buyer's business and assigns time and number values for these components in the form of input information (e.g. monetary values) as it relates to the savings and other economic benefits to be computed by the customer implementing the provider's offering (the “program”.) The provider and customer will preferably work together over time to identify the various areas of the customer's business where the goods/services can provide economic benefit, and will together preferably assign values to each component that will determine the Value Model. Savings in each applicable area of the customer's business realized as a result of following the program will be determined, on a per unit savings and/or on an annualized company wide basis. The input, updating, model and calculation of the Value Model will preferably incorporate a computer and data processing system.
Next, the Value Share will be determined. The Value Share is the calculation that determines the price of the goods and services in excess of the market-determined price for each and every commodity product and/or service charged by the provider to the customer. The Value Share preferably depends upon three factors, namely: (1) the level of customer's business activity; (2) the percentage of customer's particular products and services provided by the provider; and (3) the percentage of roll out of the program.
As with the calculation of the Value Model, the method of the invention will utilize a computer and data processing system to allow convenient entry of data and processing of data.
In one preferred embodiment of the invention, the Value Share for a given month in a current Interval can be calculated using the following formula:
VS
P+i
=(
VS
P
/BAM
P
)(
BAM
P+i
/PT
P+i
)(
RPT
P+i
)
Where:
P=the immediately past Interval;
P+i=a given calendar month in the current Interval;
VS
P
=a predetermined percentage of the Value Share calculated for P (VS
P
will be estimated for the first Interval);
VS
P+i
=Value Share for P+i;
BAM
P
=Business Activity Measure for P;
BAM
P+i
=Business Activity Measure for P+i;
PT
P+i
=Percentage of customer's total particular products and service needs obtained from provider in a given calendar month in the current Interval; and
RPT
P+i
=Percentage of completion of program for the customer.
The BAM will be defined for a customer's particular business, and will preferably be a collaborative effort between the customer and the provider, or some third party facilitator.
The provider and customer will jointly determine the Interval to be used to analyze the Value Model and the Value Share. The Interval will typically be one year, but can be a shorter or longer period of time. A new Interval starts immediately upon expiration of a previous Interval. The Interval may be adjusted from time to time as required by the provider and customer.
After the expiration of each Interval, the provider and customer can mutually agree on a readjustment of the Value Share to reflect the then current estimates of the actual value of the offering to the customer for the just completed Interval. The applicable formula set forth above can be recalculated using the actual results for the determinants of the value to customer for the completed Interval (“Adjusted Value Share”). The amount by which the Adjusted Value Share is greater or lesser than the Value Share can be paid, debited or credited by the provider or customer, whichever is the case, to the other party. For added fairness, an independent consultant can do the Value Share calculation
C. M. & I. Technologies, Inc.
Christie Parker & Hale LLP
Cosimano Edward R.
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