There is a view that you need to be the cheapest to win a tender. My response to that opinion is always the same. “When did you last buy a house? Did you buy the cheapest house you were shown?” Every person I’ve posed that question to so far has said “no.
My next question: “did you spend more than you planned?” The answer usually comes back as, “yes.” We stretch our budget, find a bit more money to buy that house that is just out of our reach because we recognise the extra value in that property. It’s easy to see because we are looking at a tangible object: bricks, tiles, kitchens, etc. Our mind assesses what we see compared to the other houses we’ve looked at and mentally calculates the extra value for the small increase in price. The extra value is personal: for some, it’s the chef’s kitchen. For others, it’s a better location, e.g. proximity to the primary school. For others, it’s a fact there’s nothing to spend.
Now, if you have a fixed budget, it’s about buying the best value you can find. I recently bought a 4WD, the value conversation came down to year and km. I found the newest vehicle with the lowest number of kilometres travelled within my budget. Year and km's were my two main parameters for value for that purchase.
But when a large organisation is purchasing a service, it is not that easy to see the extra value. Most suppliers aren’t that great at demonstrating it. For suppliers, if your offer looks exactly like everyone else’s, then all you have left to compete on is the price. In that case then, those people were right: you do need to be the cheapest to win.
How do you present your value?
Most suppliers struggle to present their value in an offer document. It’s such an intangible object and it can be difficult to measure. Value can be defined as:
- A fair return or equivalent in goods, services, or money for something
- Relative worth, utility, or importance: precise significance
- Something intrinsically desirable
Value decisions
For most buyer organisations, value decisions fall into one (or more) of three categories:
1. FinancialBuyers decisions can be based on the following financial questions:
- Will your offer help us avoid costs?
- Will your offer help us increase revenue?
- Will your offer help us increase profitability?
Financial benefits should be articulated in monetary terms and be as precise as possible. For example, we anticipate you will save $30% or $54,000 in the first six months.
2. Strategic
Buyers decisions can be based on the following strategic questions:
- Will your offer increase our service quality?
- Will your offer shorten our product delivery?
- Will your offer provide us access to more markets?
- Will your offer enhance our business in some way?
Strategic benefits are less measurable but no less important. They should resonate with the buyer, which underlines the importance of knowing your prospect, and the questions you should ask them before submitting an offer in writing. For example, our product allows you to monitor your competition’s online activity in a way that’s never been possible.
3. Personal
Buyers decisions can be based on how your offer may benefit them personally. For example:
- Do I like you and will I enjoy working with you?
- Does your offer excite me in some way?
- Will it make my life easier in some way?
- Does it align with my vision for the company?
- Does it offer me a way to gain more recognition or power within the company?
Personal benefits are subconsciously assessed and are specific to each individual. Therefore, it helps enormously if you understand the buyer and who will be on the evaluation panel. Then you can tap into their agendas and make your document “speak” to them.
When considering value it is not just the sum of the value that you provide. There is also the buyer’s perception of their costs associated with adopting your product So the value equation becomes,
“Their perception of your value = the sum of all your claims of value – their perception of your cost.”
How do you measure costs?
Your costs can be measured in three ways:
1. Financial CostsTotal cost of ownership (your purchase costs and the operation costs), their switching costs, (the opportunity costs associated with the time it will take to switch to you as a provider).
The time associated with the learning costs, how long it will take to switch to you, travel time, acquisition time etc.
3. Personal Costs
Anything that will add stress to the buyer in changing the product/supplier. If they think switching will be too hard, then you have a big job to convince them otherwise. Otherwise that single element alone could outweigh any benefits you present.
The more clearly you can present your value in a conversation, proposal and/or tender, the more likely you are to be able to name your price because your price becomes less important than the gains you represent. If you can’t compete on value, then you are forced to resort to competing on price.
If you are new to tenders or need to brush up on your tendering knowledge, be sure to download our Introduction to Tendering eBook. The eBook highlights details on how to respond to tenders and more.
