How often do we see that once received an RFI or RFP from our customers we immediately start working on it without a proper strategy? As such, a common result is that the solution guys over-scope the solution, afterwards, delivery will cost it, put some risk and margin on it and we go back to the customer. This approach – allowing costing to set pricing – can sometimes work, but most of the time it does not. In this article, I will explain some key fundamentals – as complete books are written on it – how the PtW (Price-to-Win) strategy works and how you can use it in your future deals.
What is Price-to-Win?
PtW is the highest possible bid towards your customer which ‘can’ let you win the deal. It sets forth a mind-set on how you can shape your deal from the start by setting a clear PtW strategy for your team to work with. This approach will allow your team to get externally focused (price-oriented) which is key for success in modern deals. This sounds logical, right? But as already said above, a common mistake is that cost-models determine the pricing which leads to an over-priced and/or over-scoped solution and eventually loses you the deal. Here below some high-level steps to start working with the PtW principle:
Set baseline and parameters
If you don’t have the right set of parameters to work with (E.g. no baseline of units, invoicing matrix, estimations, etc.), you should ask for it. Therefore it is very important that from the start you establish open communication with your customer to pulse the proposal cornerstones throughout the deal lifecycle. Without asking, your team has to work with assumptions and/or estimations, which could ruin your deal and waste company bid budget. Keep in mind that you can also show your expertise by providing real-time examples which are market standard and working efficiently and effectively at your current customers. This allows you to show your companies majority and your customer will embrace your openness which eventually could/will help them as well. Most deals are won by using openness, simplicity, and clarity from the start. So don’t be afraid to ask questions like: ‘What is your budget (PtW) for this service?’, ‘What are your real knock out criteria within the RFP process?’ or ‘who can we work with from a procurement point of view to discuss the invoicing matrix’. You need to gather all the necessary information to establish a mutually agreed baseline.
Market & competitor analysis
Ensure you have a solid understanding of your customer request (including baselines) before executing benchmark analysis within your organization and/or externally. The results of such benchmark will help you to determine if the PtW is valid. If the outcome of such benchmark is that the market price is higher than the expected budget (PtW) from your customer, be open and discuss this with your customer. However, before you do this, double-check the benchmark results and your solution details first. Once you are confident the findings are correct, discuss it with your customer, but ensure you are fully prepared with details (and proof) before you engage otherwise it can – and mostly will – backfire. However, most of the time it is somewhere in the middle, for example, the solution is too customer-specific and therefore not comparable with a market standard solution or the market solution has no transition/transformation efforts included and the customer has to do it themselves (which they did not include in their budget and results into shadow-costs). Note that it is all about helping your customers making the right decision not to teach them otherwise.
Set an early Cost Target
The formula is PtW – Margin – Risk = Cost Target. The Cost Target sets forth a key design parameter within your team that guides them to keep externally focused (price wins deals). Of course, you will not win a deal if the solution is simply crap and/or your proposal is not on a quality level which is should be. However, in most cases, the price keeps you in, our out. Your team will continuously focus to achieve this target and not over-scope the solution. Additional features or options not directly required should be mentioned in addition to your proposal to make your business case and value proposition even stronger. This allows you to keep to the PtW principle active in the team, but also room for innovation. Providing your customer innovation, which can be cost savers, additional valuable items, etc. shows your expertise and they will be more likely to choose you as the future provider. Why? Because you kept within the budget (PtW) and on top though out-of-the-box (innovative) as well. You can also use those to strengthen your unique selling points.
Manage your customer
If during the deal lifecycle the customer changes solution parameters or baselines variables that have an impact on the price, you have to bring this up. Call or meet your customer and openly explain the logic behind your reasoning. Explain why this impacts your price and ask if they knew this would impact the price (ensure you talk to a decision-maker, not the IT guy who wants all features enabled). Depending on the outcome, you can determine how to manage it but it is key to keep a log of changes that impacted the price during the whole deal lifecycle. This log – for example, a waterfall flow – will provide more clarity towards your customer regarding your proposal and allows them to identify potentially shadow-costs or requirements which the competition ‘forgot’ in their proposal. Please note this log should not be used to show how ‘unprofessional or bad’ your competition is, but to provide your customers with the right information to make a better comparison and eventually the right decision. Being honest goes a long way and builds lasting relationships.
Monitor and lead
During the deal lifecycle, it is important you continuously monitor and track your P2W. It can be impacted by your team, not costing towards the Cost Target, or your customer by changing baselines or solution requirements as explained here above. Ensure you keep track and lead all parties in the same direction: be able to provide a state-of-the-art solution, which innovative ideas in addition, for the price which wins you the deal. There are plenty of resources on the web how to manage and keep track of such a program.
Note: You will not win every deal by simply providing the lowest/best price, the total package (quality of the proposal, solution, service-delivery model, agility, governance, relationship, references, political decisions, etc.) have a huge impact as well to a different kind of decision-makers. However, the price is and will remain one of the key decision factors.