Five Strategies To Win Work In Price Driven Markets
Dave Lunn, CP APMP, MCIPS
With the new year comes a slew of new contract opportunities, and a renewed focus on winning it. While we are seeing a return to ‘value for money’ procurement decision making – where continuity of supply, relationships and risk management seemed to guide sourcing activities, we all still clearly remember the post-GFC economy and slowing GDP driving clear ‘price cutting’ and ‘savings’ agendas.
Many organisations we speak to, especially in resources and construction markets, can share one or more of the following examples:
- Contracts for the supply of goods or services being terminated (for convenience) and retendered.
- ‘Invitations’ to participate in buyer cost-down processes/ price renegotiations.
- Losing tenders and proposals to competitors offering unsustainable low prices.
Also, our conversations with contractors and suppliers reveal that online tendering platforms, procurement evaluation tools and practices are still perceived to be ‘commoditising’ their competitive offers. So even though ‘value for money’ assessments are being made, sellers need to work hard to make sure this perception does not translate into practice.
So, how can work winning today capitalise on these lessons?
Through a number of client discussions, across a variety of industries, we’ve identified the following five techniques used by organisations to repeatedly win work, maintain margin and generate positive cash flow during tough trading conditions. These are equally applicable today.
1. Knowing when to say no – to bid or not to bid.
It’s tough to say no to tendering and proposal opportunities that present themselves – no matter how long the success odds are. However, the surest way to improve tendering success rates is to bid for opportunities that you are likely to win.
Chasing everything is inefficient and skews tendering and estimating effort toward scale/volume, not quality. Unfortunately, ‘mass produced’ tender responses are very evident to buying organisations and do little to inspire confidence, or increase the likelihood of success.
Many businesses believe that they will be perceived negatively if they don’t tender – especially if invited to do so. Wise organisations know that if they aren’t likely to win, it is much better (and cheaper) all round to share their no-bid rationale with the prospect.
2. Knowing the numbers – how much should be invested to win your fair share?
Smart organisations know how much they should be spending to secure new and repeat business. This typically ranges from 0.5% to 2%* of contestable revenue. By properly budgeting for this expenditure, wise business development and proposal management decisions can be made. Realistic efficiency, improvement and return on investment targets and metrics can also be developed.
It’s also important to keep on top of the market. Without question, great estimating is key to winning bids. Keeping pricing norms up to date, regularly testing subcontractors’ rates and actively soliciting tender pricing feedback is essential to maintaining ‘price to win’ visibility.
* OST International
3. Face aggressive pricing head on
We’ve lost count of how often organisations say they were beaten by a price so low that it couldn’t possibly be sustainable. Winning bids 20% cheaper than the nearest competitor offer is typical.
Rather than lamenting this situation, smart organisations are doing something about it.
One approach is not to bid if you can’t sustainably price to win. Another is to develop lower-priced options to directly compete with expected low-ball competitor offers. These options are framed around relative benefit and risk. This technique reinforces your technical acumen and solution understanding, but also makes sure that any lower price competitor offers are being considered in a realistic context.
4. Put some ‘skin in the game’
It’s a fact that incumbent contractors and suppliers win about 70% of the time. Even if they are only adequately performing, buyers are often reluctant to change contractors/suppliers for fear of the pain that may ensue. This incumbency preference also persists in price-centric markets, in spite of the logic that buyers should be more willing to accept risk if there are substantial savings on offer.
One technique used by smart businesses to encourage buyers away from current suppliers is to self-impose transition and performance guarantees. This takes risk mitigation to the next level, often allowing them to produce offers so compelling that they are difficult to overlook.
5. Develop a next contract strategy while delivering on the current one
Although not strictly a technique to influence your offer price, this is an advance ‘shut-out’ strategy, based on the notion that delivering work and winning work are linked competencies. Effectively, it’s about trying to avoid the price discussion in the first place.
Smart organisations know that the day you sign a supply contract with a client is the day you start preparing for the next one with them. Organisations that recognise this ensure that the staff performing work are not only executing well, but also using their incumbency position to subtly shape their clients’ future re-tendering plans. In the event of a re-tender, a high-performing incumbent organisation will enter the process with a distinct advantage.
These strategies are aligned to work winning in price centric deals. However, they are equally valid whatever the prevailing market conditions. Having these at part of your bidding toolkit is just good practice, providing you with a range of options that can be deployed as and when needed.