As a vendor, when preparing a response, what should you include in order to achieve the right balance between price, quality and the numerous functionalities that your customer has requested?
It is safe to say that price emerges as a leader when it comes to influencing the outcome of a bid. Vendors with the most competitive price almost always manage to attract greater interest from the customer. But how low should the price be in order to win a tender guaranteeing a quality product that meets the expectations of the customer?
In order to find the right balance, the right strategy needs to be applied. Here are two:
Unfortunately, we cannot know beforehand what our competitors will be including in their response in terms of pricing and features. We also do not know which key parameters the customer will be using to make their final decision.
Therefore, the starting point needs to come from us, what is our minimum product price which will allow us to cover our costs and achieve margin.
Once you have defined your parameters, you need to start thinking in terms of value:
- What is the value we offer?
- How will the customer perceive our value?
You need to set aside your own views and look from the point of view of who will be awarding the contract. Often, we underestimate the vast number of variables which influence the decision. It is therefore fundamental to go beyond appearances:
- Try to understand if the customer is ‘required’ to create a formal tender, they may have already made their decision. This can happen, however, it doesn’t mean that the company is not operating in good faith. Participate anyway and be creative, each tender is a golden opportunity for your potential customer to gather information about the market and about you.
- Customers may also want to attract smaller or different suppliers with the purpose of differentiating risk and maximizing competition over time. Maybe there are portfolio strategies that could favor you this time round.
- Always remember that the price equals cost to the customer. If the costs are difficult to comprehend and the customer has to ‘work’ to read them, the risk is that they move onto a ‘clearer’ offer. Is the quantitative element well explained, is it better to show a bundled price or an itemized one that helps the customer understand what is included in the offer and what is not? The choice depends on many factors, always keep in mind that we do not want to make the customer work too hard to understand how much our product costs.
- Ask yourself how strategic is the project for you? It is one thing to lower margins in order to participate in the launch of 5G, it is another if the bid is to dispose of a legacy 3G network. In the first case we move towards innovation and return on investment, in the second, it is a mandatory cost for the customer.
- Always consider your customer’s business model and roadmap. If you are already a supplier, it is important to always show interest in how the customer generates revenue. In some cases it may be worth introducing variables or price brackets into the offer. If my solutions have a direct or indirect impact on revenue, I may need to consider corrective actions in my offer to balance the risk for the customer, if not, how will our value be perceived?
We recommend combining this strategy with the one described above, most of all if the tender has been requested by one of your aquired customers.
The basic assumption is simple: the only way to understand what the customer thinks about you is to ask them. Value analysis allows you to comprehend what is important to the customer; what value do they ttribute to variables such as price, delivery time, service, relationship with the supplier. If for a customer, the price of the product needs to be low, but attributes a high value to the service, then the company participating in the tender has a better idea of which product component they need to invest in (and where they can reduce costs due to value not being recognized), thus increasing its competitiveness and its own profit thereby winning the tender.
The key ingredients for conducting this analysis are:
- Use an external consultant that can interact independently with the customer. Interactions between you and your customer would not produce objective insights, the feedback and perceptions collected would be influenced by the dynamics present in the existing business relationship. Feedback through your sales network would also be distorted as this is a delicate sales negotiation area.
- The method needs to be designed around your business and your customer base, therefore which segment and number of customers to involve, which functions and what information to collect. The correct implementation of the analysis is key to its success.
- The results need to be clearly represented in order to transform them into Business Improvement plans. The database that is generated by this type of intervention is invaluable. By conducting a value analysis on a periodic basis, the data becomes essential to taking strategic decisions in all areas of the business.
Starting a value analysis that asks the right questions to your customers could get you awarded the next contract.