In many industries, price has become the only apparent differentiating factor in contract awards. Pricing wars put small and mid size business at a disadvantage because larger competitors can low-ball a bid in order to freeze you out.
How will you know if you are in a pricing war? And if you are, how can you respond?
In an RFP circumstance, you should intend to be the lowest cost suitable provider or to decline to bid. Unless,
- you can beat the field on unique past experience (and don’t kid yourself!)
- you can beat the field on a unique plan of work (which will save money)
- you know what the current provider is being paid (and you can beat it)
- you are the incumbent (and you can leverage the relationship)
Regardless of the overall bid price, there is an implicit cost of change that the whale will consider. That’s why price wars favor the incumbent.
- Explore your bidding history. What are the proposals in which you have lost out on price? Do you have detailed feedback on pricing and other elements of your proposal? If so, use them going forward.
- Find and use data. Be certain that you understand standard pricing for sales in your industry, especially pricing among your large competitors.
- Hire a consultant. Use a pricing expert to help you consider options and to understand the competition.
- Take more training. For government contracts especially, many training programs are available for your team to learn more about costs and pricing for government business at the local, state, and federal levels.
- Match your deliverables to the requirements. When you must compete on price, don’t add any frills or “nice to haves.” Stick with the minimum requirements and price aggressively.
Your sale is not complete until the buyer says “yes.” So whether it’s an RFP or a face-to-face consultative sale, your business development strategy requires a comprehensive pricing review to accelerate your business growth.
We would love to hear your personal strategies for winning the pricing wars–or examples of coming in second and lessons learned from that experience!