Why do companies keep telling me that they lose their bids on price?
In Singapore, much like Australia, people always tell me that they don’t need to worry about the quality of their bid because decisions are ALWAYS made on price.
This argument relies on the fact that all customers are capability-satisfied and have written their tender based on a perfect understanding of what will solve their issue. This and the idea that a "good" bid can not sway the customer.
Take it from me: there's always a bit of wiggle room regarding price, as long as you know what type of buyer you're dealing with.
Customer price models
When it comes to price, there are three main types of buyers. Budget Limited, Capability Satisfied, Best Value.
- Budget-limited buyers who buy as much capability as they can afford
- Capability-satisfied buyers who buy what they need at the lowest available price
- Best-value buyers who trade price against capability, often with a deep understanding of both market aspects; value buyers can be naïve or educated.
A capability-satisfied customer resists the extra features and buys the lowest-cost solution that meets the need. Unless you produce a pure commodity item with no value adds, you are missing out on large segments of the market.
As we move to the higher end of the market, pushing the state of the art, best-value buyers usually hold sway, and the trade-offs become highly subjective. An educated, best-value buyer who did enough homework to know where the market lay. The desired capability was high, and a realistic budget was set that matched it. This kind of buyer is unlikely to buy from a company that doesn’t have a consistent strategy that goes from their pre-sales to their bid. They will want to know that everything they wanted when doing their homework is delivered in the actual product. Furthermore, they can be easily swayed if a bid suddenly offers more value than the others.
Of course, there are always customers who want high capability but are naive and don't realize what it costs. So, it faces a quandary. The buyer can't afford the capability they need on their budget. So they're left to choose between less functionality or blowing their budget. This is the budget-limited buyer. With these customers, there is a fine line between giving them the value they want at the price they want without dropping your trousers.
The customer writes a bid based on a perfect understanding of what will solve their issue.
I was chatting to a friend of mine over dinner. She was livid. Her company had gone out to tender for a new system. To determine what they wanted, one of her people had gone to each department impacted and asked what they wanted the new system to do. This person then packaged it up and sent it to vendors.
That was it.
My friend asked if they had compared what each department had sent in and worked out what was necessary and what was 'nice to have.'
They had not.
This was long before they even discussed how much they wanted to spend.
Many companies get into a pickle when trying to buy something, often being diligent when collecting desires but leaving out essential elements in their RFPs. Doing pre-work, discussing with several people within the company, and even asking questions during the tender allows you to better ascertain what the customer is after. There may even be elements the customer doesn't want to admit to needing.
Why customers don’t just buy on price
Customers, like vendors, are complex creatures.
The better you...
- Know your customer
- Carry your customer-focused strategy through all the phases of your pursuit
- Deliver a bid that reflects what you have said before the RFP came out
Then the better you will be able to target all types of price buyers.
Customers will always tell you that you lost on price. It is an easy way to end an awkward conversation.
So, in your subsequent pursuit, don’t give them the easy way out; instead, provide them with every chance to select you as the preferred vendor.