Authors: Patrick Witschi, Aparna Bharadwaj, Jean-Manuel Izaret, Lauren Taylor

In the B2B business space, bids are a way of life. Unfortunately, due to the growth of professional procurement, sales teams are spending less time on developing relationships and closing sales and more time cannibalizing price strategies by identifying minimum bid prices in order to win deals. In this article, the author gives pricers strategies for maintaining pricing integrity in the B2B bidding process. Avy Punwasee is a Principal at Revenue Management Labs, where they help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Avy at apunwasee@revenueml.com or learn more about Revenue Management Labs.

The Pricing Advisor, April 2017

For B2B, bids are a way of life. A large portion of sales in most companies is tied to bids, and success in closing dictates whether companies will operate at capacity and meet margin targets. Unfortunately, customers are becoming more adept at wringing cost concessions from suppliers through their bidding system. The advent of professional procurement, reverse auctions and online bidding systems are pushing sales teams to one response – “we have to be the cheapest price to win.” Sound familiar?

Sales people are gradually turning into prisoners with calculators. Instead of primarily using their time to make contacts, build relationships and profitably close the sale, they have turned into bean counters attempting to close by uncovering the minimum bid price possible. In Shawshank Redemption, it took Andy Dufresne 17 years to tunnel his way out of prison. Unlike Andy, businesses do not have the luxury of time to figure out how to bid intelligently. The opportunity costs associated with lost business and corresponding profits could mean the difference between prospering and liquidating.

Start using the following practices to bulldoze your B2B bids:

1. Start with your Customers’ Needs

It sounds cliché but organizations frequently go into bids without truly understanding the reason for why the bid was issued. The simple answer is that the customer is looking to acquire a satisfactory product or service at the best possible price. Simple yes, but also complex. A grasp of the customer’s motivation for the bid is key to your approach and the realization of the expected outcome:

5 Practices to bulldoze your way through B2B Bids

2. Know what value you are bringing to the table

When beginning the bid process, companies often have an idea on historical opportunities and margin targets but struggle to define and quantify what true value they offer. If you do not have a disciplined process to set your value or price, it is most likely your organization has this issue. Value can be evaluated from two perspectives:

1. Perceived Value

Figure 1

Figure 1 is a visual representation on how your customers position your price and value versus competition. It helps a team assess what decision a customer will make given the competitive alternatives available. The first step in compiling this map is to assess customer price sensitivity to determine the rate at which they will trade off between value and price (Fair Value Line). The steeper this line is, the more price sensitive your customer is. You must then identify the key differentiating purchase attributes (i.e. warranty, taste) and score versus the competition to determine relative perceived value. The last step involves acquiring or imputing competitive prices and plotting each customer alternative.

If an offer appears to the right of the Fair Value Line, it is deemed value advantaged. The offer that is the furthest right of the line will be preferred by the customer (most value for the lowest price). Offers to the left of the line are value disadvantaged and, in the short term, usually require price adjustments to be competitive.

Utilizing this tool, even at a simplistic level, will help you understand where you are positioned in price versus competition and why it is merited.

2. Financial Value

5 Practices to bulldoze your way through B2B Bids Financial Value

When a customer decides on a purely financial basis (i.e. brand value not considered), utilizing financial value measurement is more appropriate. In this instance, the organization must seek to quantify all the benefits and costs accruing to a customer by purchasing your product or service over the competition.

It is critical that you are exhaustive in this process. Often, we find that client organizations overlook elements such as switching costs, warranty, payment terms, sales support, etc. Thus, they are not only forgoing their value in the asking price but neglecting to explain these benefits as further justification of the offer’s value.

Financial Value measurement needs to be done from the customers’ perspective, so keep in mind quantitative trade-offs associated with size (how big is the benefit), certainty (how likely am I to realize) and speed (how long will I have to wait to realize). By already accounting for customer considerations and objections, you will be better able to substantiate the value you bring to the table.

3. Those who cannot remember the past are condemned to repeat it

The foundation of enhancing your bid sophistication is based on a large sample of win/loss data. Simply put, this is the result of collecting variables on past bids such as:

  • Won or loss
  • Price bid
  • Competition prices
  • Deal size
  • Customer segment
  • Offer components

Most important of the variables is the justification on why a bid was accepted or rejected. Most organizations fail here by either not following up or relying on their sales teams to gather the requisite data. Not surprisingly, Sales will frequently cite price as the driver. It is an easy answer when you are not close enough to the customer and often does not get any resistance apart from asking how low the competition was priced.

A better practice is to have another group, internal or external, gather the input on why a deal was won or lost. For example, before undertaking this step, a building material supplier believed 95% of their losses were based on uncompetitive pricing. After reviewing 100 bids with direct customer contact, it was found that pricing only affected 23% of the losses. Most of the gap was being driven by potential customers not fully understanding the companies’ value offering and competitive gaps on shipping policies. This insight led to a drastic shift in their bidding process and investment allocation resulting in an increased close percentage of 39%.

4. Connect with your customer and showcase your value

Once you have quantified your value, it is essential that you consolidate it into an easily digestible story that the team can deliver to the customer. The best pitch decks are short, can be presented in under 30 minutes and leave customers with the 3 or 4 key competitive differentiators that make your offering an ideal choice.

With the advent of online bids and professional procurement entities trying to commoditize offers, it is becoming more difficult to secure presentation time with customers. Regardless, it is something you must do or else you are only relying on your price to differentiate your offer.

Numerous clients that we dealt with have instituted a policy of declining to bid if they cannot meet with the potential customer to discuss why they are the right solution.

5. Utilize an Automated Bidding Tool

This is where the pain associated with collecting win/loss bid data starts to pay dividends. Using this data, you can calculate the probability of winning a bid given a certain price. Depending on the richness of your data you can drill deeper to calculate bid success probabilities for some of the following variables:

  • Customer segment
  • Region
  • Competition
  • Product mix

Just like with Game of Thrones and episode count, the more variables you include, the better it gets. To illustrate, the following is a high-level bid probability estimate. You will notice the only variable that is considered is your bid price.

5 Practices to bulldoze your way through B2B Bids

In its ideal form, the sales team should be able to use a bid pricing tool independently. They fill out all the customer details, the offer portfolio and proposed price. The tool should then output a score that lets the salesperson know if they are approved to bid or require corporate approval to move forward. By putting the tool right in the sales teams hands they become adept at modifying deal attributes (ideally with the customer) to achieve higher scores to bid without any outside influence. The tool also ensures 100% data capture.

5 Practices to bulldoze your way through B2B Bids

From a corporate standpoint, the tool can centrally be leveraged to:

  • Increase or decrease the amounts of bids being won
  • Set dynamic parameters on margin requirements
  • Ensure all bids are being processed and evaluated in a consistent manner

Just as Andy in Shawshank Redemption traded his dull rock hammer for a sail boat in Zihuantanejo, trade your sales team calculators for bid tools. It might not be as satisfying as sitting on a Mexican beach, but at least with the extra margin you can buy freedom.

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