Pricing: The Forgotten Competitive Opportunity
Pricing is often viewed as a dreadful number-crunching exercise. However, having the right approach to pricing can delight a prospect, differentiate your offer and deliver desired margins.
KEY POINTS
- Capture Planning means identifying opportunities, developing customer-specific strategies and creating relationships with people at the earliest opportunity
- Get your own house in order - make sure your Business, Marketing and Capture Strategies are aligned; this will inform your Tender Strategy
- Create a Capture Plan that engages all key personnel in your organisation and map them against your prospect's key personnel
So you've spent many hours making sure your tender response addresses all the necessary criteria. You've included some really cool graphics, and you're confident that your solution is exactly what the prospect is looking for. But, what about the price?
Specifically:
- Have you assessed how competitive your price is?
- Can you explain why the price is what it is?
- What does the price say about your solution - and your organisation?
- What message is it sending to the prospect?
- How does your price support your solution strategy?
Or, have you just made an educated guess at 5 minutes to midnight?
Why Is Price Important?
The answer to this might seem obvious, but reality is a little more complicated. Various studies have concluded that only between 11-17% of tenders are lost because of an uncompetitive price. Perhaps that seems like a surprisingly small number to you? After all, how many times have you heard sales staff complain that they lost a tender because of price?
However, often tenders are not lost because of the dollar price. Rather, they are lost because the price was not understood - or was badly explained.
To be more specific, let's think about what 'Price' actually is. Price is a representation of the value a supplier can provide to a prospect. The prospect will happily pay a price: so long as they perceive the benefits they receive to be greater than the price they pay. In other words, where the value justifies the price. Price, then, is about value, and the ability to communicate that value to the client.
By way of an example:
- Dealer A has a car on his forecourt for the on-the-road price of $30,000
- Dealer B sells an identical car on his forecourt for the on-the-road price of $31,000, but it comes with 2 years free petrol
If Dealer B failed to communicate his unique offer clearly - perhaps burying it amongst the fine print of the contract - a potential purchaser could easily (and understandably) make the wrong decision.
A tender isn't necessarily lost because the price was wrong. Tenders are lost because the value proposition:
- (1) Was not strong enough to justify the price, and / or
- (2) It was not successfully communicated
A Better Approach to Pricing
Around 80% of organisations approach pricing with a focus on their product, services, costs and/or their internal processes. Taking this introspective view, it is easy to forget that your prospects are the ones, ultimately, that need to be sold to.
Your prospect needs to be right at the centre of your Pricing Strategy. And that means truly understanding what your potential clients are buying from you: gaining insight into the business problem they are trying to solve.
For example:
- A business doesn't engage an accounting firm simply to fill out their tax paperwork. They are buying peace of mind, confident that their books are in order should an audit occur.
- An organisation doesn't just purchase IT services from a vendor. In fact, they spend money so that IT experts can help them run their business more smoothly.
When you boil down B2B transactions, every supplier is interested only in one or more of the following three things:
- Reduced Risks
- Reduced Costs
- Increased Revenue
How should you go about Pricing?
The key to successful Pricing Strategy is a thorough understanding of your prospect, and their points of pain:
- What was the compelling event that prompted them to go out to tender?
- What would be the effect on their business, if you were to be successful?
- What additional value can you provide compared to your competitors?
Clearly, this kind of intelligence cannot be gathered the day before the bid is due. Pricing must be a part of your overall strategy and decision-making process as early as possible in the bid lifecycle - as a key part of your Capture Management Plan.
Taking the time to ask these questions results in lots of additional benefits, too. You will better understand your prospect, your offering, your business and the wider market you play in. Additionally, you'll be armed with the vital information you need in order to make an informed bid/no-bid decision long before you've invested significant resources.
Pricing is a powerful weapon in your tendering arsenal: it's where the rubber really hits the road. But for it to be a powerful competitive tool, it entails much more than adding up costs, deciding on profit margin and hoping for the best. Price early, price intelligently, price for value.
Greg Eyres is a freelance consultant with Tender Success. His pricing strategy approach has powered competitive bids for some of Australia's largest corporations. Contact Tender Success to ensure your next response is a success.
