Price-to-Win

Price-to-win combines customer and competitor intelligence with careful attention to the balance of capabilities and cost. It’s an assessment that helps vendors arrive at prices that customers will value.

Introduction

Understanding pricing to win requires common definitions and perspectives on evolving trends in business development best practice. First, key definitions:

  • Price is the amount of money expected, required, or given in payment for the solution.
  • Cost is the cost to the seller to supply the solution. If the seller makes a profit, then the price exceeds the cost.
  • Price to compete is your interim estimate of the customer’s perception of a competitive range before final requirements are known. Use it to guide initial solution design.
  • Price-to-win is the combination of price and capability yielding a probability of win that meets the seller’s strategic objectives based on the requirements and evaluation process. Hence, price-to-win isn’t just a number. Rather, it’s a number linked to a set of capabilities that generate specific measurable benefits to the buyer.

Pricing to win is the process of achieving or arriving at the price-to-win. Pricing to win is the next major focus in the evolution of business development best practice. In markets involving complex sales, business development practices tend to evolve in this order:

  • Professional sales techniques are implemented—first tactical, then strategic
  • Professional proposal planning and management processes are implemented
  • Formal capture planning and management processes are implemented
  • A formal price-to-win process is implemented

Price-to-win best practices are most applicable to a single major opportunity or groups of similar opportunities. Placed in context:

  • Strategic competitor analysis focuses broadly on your competitors’ capabilities, capacities, personalities, and market penetration strategies
  • Tactical competitive analysis focuses on the same items in the context of a single opportunity
  • Pricing to win focuses on the tradeoffs between the customer’s requirements, budget, and values; your objectives, capabilities, solution, and costs; and your competitors’ likely objectives, capabilities, solution, costs, and strategies

Best Practices

1. Understand the characteristics of a mature, successful price-to-win capability.

What makes price-to-win successful? Strong price-to-win activities depend on:

  • A strong, long-term commitment to price-to-win resources and strategy
  • Investment in price-to-win activities that aren’t subject to arbitrary cuts
  • Mechanisms that allow for the capture of intelligence at all levels and from many different sources
  • Encouragement of honest analysis that challenges internal assumptions

Organizational commitment and investment are only part of the story, however. Successful price-to-win activities share several additional key elements:

  • A knowledgeable senior management champion who understands price-to-win and is committed to using competitive information for decision making
  • An early start in the opportunity/capture stage to allow for sufficient time for effective research and analysis
  • An independent price-to-win function from the opportunity/capture team, whether in-house or obtained outside, to ensure objective assessment
  • Consistent use of repeatable tools in a well-documented process
  • An attitude of continuous improvement
  • Involvement of all stakeholders, including the pricing team
  • A clear focus on providing actionable outcomes

Price-to-win is a process for analyzing competitor and customer data to determine how other bidders are likely to position their solution and bid price with their understanding of the customer’s budget and their assessment of value. It is an assessment that shows how competitors’ pricing is likely to be derived. Price-to-win is an external examination that defines where your business should target your offering.

Price-to-win analysis is used to develop winning opportunity/capture and bid strategies. When price-to-win analysis is done (this may be an iterative process driven by uncertainties), you can develop and implement internal tactics to develop influencing opportunity/capture activities, construct a successful bid, and address the customer’s selection criteria.

  • Cost is the total range of expenses the offeror expects to spend to deliver the requirements
  • Price is the monetary payment for the offeror to deliver the requirements

Generally, the following relationship must be true:

Customer’s Perceived Value ≥ Customer’s Budget ≥ Your Price ≥ Your Cost

Why do so many organizations consider price-to-win? Without knowing a customer’s target price range, organizations would be aiming in the dark at developing a winning price solution. The key is knowing the target price range and other factors that are important to the customer, such as value of ownership, features offered, and funding models.

2. Begin price-to-win activities as early as possible and update as new information comes to light.

Price-to-win is used to identify what kind of solution your team should offer and the price point at which you should offer it. It’s a crucial element of winning a bid. Therefore, it should be engaged as early in the opportunity/capture process as possible before a solution is developed.

Price-to-win is needed for effective best-value solution development. Price-to-win activities are a continuous process, extending throughout the opportunity/capture phase through post-award.

In the early phase, there should be a strong emphasis on obtaining a customer-independent cost estimate or developing a “should cost.” As requirements become known, cost and price may shift to meet the customer’s needs.

Even post-award, obtain information about the contract winner and input that data into your internal knowledge base. Then, compare your own price-to-win analysis with the winning price and review items that made the difference for the customer. Understanding what differentiated the winner as part of lessons-learned reviews can help your team improve on subsequent bid.

3. Employ information systems and analysis tools.

Tools and techniques used to conduct price-to-win are varied and diverse. A customer relationship management (CRM) system and an internal knowledge base are important to mature organizations for capturing information on customers and using that information internally.

The most useful analysis tools for price-to-win analysis are custom built using spreadsheets. Spreadsheets allow the organization to customize information gathered and to display it in various forms, including graphics, which are useful in senior management gate reviews and discussions.

There is a wide selection of tools that support the competitive analysis development stage. In the United States, market intelligence reporting and gathering is currently available from INPUT/GovWin/Deltek and epipeline. Many organizations also use FedSpending.org to obtain budget tracking information on their customers.

Use top-down analysis to consider how the customer historically has used budgets and funding to predict how they’ll likely allocate the specific opportunity budget and fund the program under consideration. Organizations usually perform these assessments early in the opportunity/capture process, before the final requirement is known.

Bottom-up analysis, which develops pricing based on a detailed evaluation of the cost of the competitor solutions and their identified strategies, should be accomplished later in the process, when the final requirements are known. This analysis is further refined as the final RFP is released.

4. Gain as much customer intelligence as possible.

It should go without saying that it’s unwise to bid on a project of any size without first learning about the customer. In the commercial environment, you wouldn’t quote a price without knowing whether it was a viable winning price. The same is true in the government marketplace. Obtaining customer intelligence is essential in the price-to-win process.

The best intelligence sources are people, especially those in your own organization. Customer intelligence can be obtained from customer meetings or presentations, as well as industry days and opportunity teaming meetings.

It’s tremendously valuable to have a system that internal personnel can use to record and share notes after meetings with the customer, teammates, and outside sources. Such a knowledge base can be integrated into your CRM system. It can be used to track progress and information about the customer and make that information available to the team pursuing the opportunity.

Intelligence about the customer’s authorized funding and what it is able to spend on the project is vital. The amount a customer can spend on an individual project is separate and distinct from its funding. This difference considers the customer’s own ongoing operating program costs and is not part of the upfront project costs. Obtaining an independent cost estimate is key to knowing what a customer is willing to pay for the project. Other important information about the customer might include:

  • Its buying history
  • Who its favored suppliers have been or might be
  • What its opinion is of those suppliers
  • Whether it’s budget limited, satisfied with minimum capabilities, or looking for best value
  • Whether it will pay for added value beyond the given requirements
  • Whether it is price oriented or performance oriented

5. Recognize customer buying types to anticipate their buying behavior.

Understanding the customer’s buying types helps organizations understand what the winning price might be. There are generally considered to be three types of buyers.

  1. Budget limited—customers who can’t afford the capability they want, but who will spend all their available budget and usually be disappointed.
  2. Capability satisfied—customers who buy only what they need at the lowest available price.
  3. Best value—a customer’s trade price against capability. Educated ones understand the tradeoffs between value and price. Naive ones mistakenly believe they can purchase the desired capability at an unrealistically low price.

Best value has different meanings to different customers. Under U.S. federal procurement regulations, “best value” has specific legal meanings in addition to the larger context of trading price against capability. Two types of best value selection processes can be used—tradeoff and lowest price technically acceptable.

  • Tradeoffs allow higher prices or lower technical capabilities to be selected when an offer is judged to yield the best overall value. Extra capability can be rewarded.
  • In lowest price technically acceptable awards, the lowest priced offer among those that are at least minimally compliant will win. In this case, no value is assigned by the customer to additional capability.

By understanding the type of customer you’re dealing with, you can better identify and position your price-to-win. Remember, price-to-win is a combination of price and capability.

If the customer sees equal capabilities from the bidders, the rational customer will select the cheapest solution. Therefore, if you want the customer to pay more, you must differentiate yourself. How much more you will be able to charge depends on the customer’s perception of your added value and whether they have sufficient budget. To influence the customer’s perception of your added value, conversations about additional capability should begin early, during opportunity/capture management.

If there is a long enough lead time, you might be able to:

  • Persuade and help the budget-limited customer to obtain a larger budget
  • Convince the capability-satisfied customer that some portion of a competitor’s extra capability is unnecessary
  • Convince the customer that some aspect of your solution that wasn’t requested is essential and that they need more capability
  • Educate the naive best-value customer

If none of these are possible, align yourself with the customer type or no-bid.

6. Determine the customer’s addressable budget.

Customers typically can’t spend all available funding on external purchases of goods or services. They reserve some portion to cover expenses associated with the purchase, and the remainder is the addressable budget.

Consider how much of the customer’s budget is addressable for each opportunity by identifying and analyzing patterns from previous budgets. Customers typically deduct or reserve a portion of the budget for these types of items:

  • Project management costs
  • Risk reserves to cover potential cost increases, errors or omissions in the specifications, or changes in quantities
  • Scope creep
  • Agency or departmental overheads (sometimes required to support other programs)
  • Fees for ancillary services, such as information technology, communications, engineering or technical support, quality assurance, or test support
  • Travel and temporary duty surcharges
  • Buying agencies or purchasing department surcharges

Determining the customer’s budget and funding profile might be as easy as asking. As a rule, the earlier in the buying process, the less fixed the customers budget. Bid requests might state the budget.

Glean budget information from websites, public statements, and news releases. Determine if overall budgets have increased or decreased over prior years and whether this trend might affect the purchase. Examples of questions to find information for or ask the customer about their budget during this early phase are listed in the table below:

1

What is likely to happen with overall funding?

2

What is the year-end trend?

3

How might this trend affect this purchase?

4

What is the typical hold back percentage?

5

Is the amount a percentage of the total contract, a percentage of known components, a fixed charge per item, or a combination with a maximum charge?

6

What is the price breakdown by probable or actual contract item?

7

What is the funding profile: timing, type, and source?

8

When will funds be authorized and available, and does the authority to spend end or extend into subsequent buying cycles?

9

Do funding provisions restrict what can be purchased? For example, capital funds often can’t be used for operating and supporting costs.

10

Does the source of the funds—whether budgeted, borrowed, or generated by fees—restrict the use, amount, or predictability?

11

Does the customer management team have incentives that influence the funding profile?

12

What is the contract type, and what are the associated allowable margins or reserves?

13

What historical cost adjustments has this customer made when evaluating your organization’s and your competitors’ bid? Think about risk adjustments implied by past performance in this area, as well as those associated with the proposed technical and management solution.

14

What are the logistics and support implications? Often about 60 percent of procurement funds are reserved for operations, spares, field support, depot support, operational integration, information technology, upgrades, and technology refreshes.

Figure 1. Continuously Refine Your Customer Budget Analysis as the Information in Opportunity/Capture Planning Matures.

7. Consider the customer’s expected price.

Individual, business, and government buyers all have price expectations. Individuals might research typical prices, business buyers prepare expenditure requirements, and government organizations typically follow regulated defined processes.

Most organizations, commercial or government, will prepare some form of should-cost analysis. This could be any of the following:

  • Independent cost estimates (ICEs)
  • Independent government estimates (IGEs)
  • Business case, including schedule, project description, and cost plan

Customers employ multiple methods when preparing should-cost estimates:

  • Comparing the total cost to the total cost of other, similar purchases
  • Using detailed parametric or bottom-up estimating models
  • Hiring a consultant to develop a should-cost estimate
  • Relying on competitors’ estimates or white papers
  • Extracting an estimate from public sources
  • Issuing a Request for Information (RFI)

The more complex the sale, the more likely customers will have prepared some type of cost estimate. Ask customers to share their estimates and/or estimating methods with you during the opportunity/capture management phase. At this time in the buying process, your customers are much more likely to share information with you to validate what they believe to be indicative.

8. Maintain strong opportunity activities parallel to price-to-win analysis.

Early in the opportunity/capture cycle, estimate and cross-check your estimate of the price to compete. To succeed at price-to-win, it’s essential to know how you stack up against your competitors. This means doing your homework. Take note of the following within your organization:

Your historical cost data. Tap into your historical data to find out what similar services have cost you in the past, your previous profit margins, and what your previous winning prices are. Your historical data should be located in a maintainable, easily accessible database. Look at your historical wins and losses and examine what pricing earned you wins or cost you losses.

Every new opportunity presents an occasion to review your business base and expenses. Examine direct and indirect expenses of existing work, and project the new bid into the organization business base. Every win should help you become more competitive as your organization’s foundation grows.

Make sure you know how your teammates will affect your price—driving it up or down. Avoid last-minute surprises on price from your teammates.

Your competitive position. Another important step is to estimate the price to compete early in the opportunity cycle. Assess your relative situation by preparing a matrix showing your competitors’ position and yours. If you have access to the customer’s “should cost” analysis, begin with that information. If not, begin with the amount you project the customer is willing to spend on the program.

Use this amount to determine how your company and the team will fit into the solution you derive. Develop a work breakdown structure (WBS) for your solution and “flow” price-to-win down to each major WBS element. Then, perform a bottom-up approach. Finally, iterate until price-to-win is equivalent to your bottom-up price. If you can’t get there, consider a no-bid.

Your pricing differentiators. Know what your pricing differentiators are—the things that set you apart from your competition. These could be factors like proprietary solution elements, favorable supplier agreements, supply chain integration, higher perceived value, or lower lifecycle costs.

Itemize those differentiators throughout the price proposal and in the price executive summary. Highlight how you will bring those features to the customer and what benefit it will gain from choosing your organization.

Consider including a features/benefits chart in the price executive summary to do this. It’s important to clearly explain your differentiators and enhance your customer’s perception of your organization throughout the price volume.

Your internal risk. Identify the top two or three areas of greatest performance risk. Address your own organization’s method and cost associated with those risks. Know what it takes to mitigate those risks, both in actions and cost, and decide how much you’re willing to incorporate those risks into the price. Make sure you maximize and prioritize value-cost tradeoffs by addressing them throughout the entire lifecycle of the procurement. Don’t wait until you submit to point these out to the customer.

Position your value proposition with the customer, develop the customer’s expectations, and evaluate the customer’s understanding of best value during the opportunity phase of the procurement.

Begin with the customer’s should-cost analysis. If available, examine customer buying trends, and seek evidence of how those expectations might evolve. Even during preliminary discussions, focus on solutions near the price to compete.

As the opportunity/capture continues, repeatedly refine your price-to-compete estimate to establish a leading position with the customer. Consider previous contracts awarded to likely competitors compared to addressable budgets for those procurements. The awarded prices on those contracts are good preliminary indicators of where competitors positioned their offers relative to customer budgets. Use your findings to estimate where competitors might position their offers on the current procurement. Although the most relevant contracts are those issued by the same customer, similar contracts awarded by other customers offer good insight as well.

Arrive at a price to compete after comparing your estimates from various sources. Develop your solution with that price to compete in mind.

9. Estimate a price-to-win using an opportunity-based, bottom-up approach.

Focus on your primary competitors. If you’re competing in a crowded market, focus on types of competitors. Rely on your tactical competitive analysis to outline competitors’ likely solutions, and then estimate how they will price each solution.

Although the following steps appear relatively direct, price-to-win analysts find the process challenging, iterative, time-consuming, and frustratingly subjective. Analysts on complex systems bid report spending months developing and refining their analyses.

At a high level, estimate an opportunity-based, bottom-up price-to-win using the following process:

  • Develop a WBS for each competitor or type of competitor
  • To reduce the bias of the immediate architects of your probable system, enlist the assistance of uninvolved designers of similar systems who are familiar with competitors’ system design and delivery approaches
  • Price competitors’ systems using a bottom-up approach
  • Price WBS components based on their prior bid
  • Adjust prices to correct for changes in rates, methods, technology, sources, and other relevant factors

Sum WBS element prices, and then adjust the total using competitive intelligence regarding competitors’ immediate business pressures and objectives. Consider current or anticipated backlogs, margin or profit expectations, strategic direction, and prior tactical responses to competitive pressures. Consider their relationship with the customer, incumbent or nonincumbent status, and even the personalities of key members of their management team. How committed are they to winning this bid?

  • Consider the strengths and weaknesses of competitors’ solutions. How might they respond by adapting their solutions and pricing? How might the customer value these changes?
  • Assess your relative position by preparing a summary matrix depicting competitors’ solutions and your solution.
  • Select a price-to-win—a combination of price and capabilities—that provides your desired win probability. You might select a lower price at higher capability than you expect competitors to offer.

Business considerations might also drive you toward other postures. For example, you might deliberately offer a higher price with greater profit margin, depending on the customer’s recognition of greater value in your solution, rather than blindly bidding the lowest possible price. Base your price-to-win on your understanding of how the customer will evaluate offers and select the winner.

Retain your assumptions and analysis for subsequent iterations as you obtain new and improved intelligence.

Determining competitors’ probable solutions, strategies, and pricing is often assigned in part or in whole to a competitor review team, depending on the capability of the team and the maturity of the organization’s price-to-win process. Organizations with mature price-to-win capabilities will often independently analyze competitors’ solutions and prices, providing input to the competitor review team. If so, the competitor review team cross-checks this input and focuses on probable capture strategies and gaming aspects. If price-to-win input is lacking or immature, the competitor review team attempts to fill in the gaps, but they often lack the time to develop new data or confirm explicit and implicit assumptions.

10. Compare likely bid and solutions using the winning price window (WPW).

The WPW in Figure 2 depicts the customer’s view of its options plotted in two dimensions: price and capability. The WPW is a conceptual tool intended to help you assess alternatives and arrive at a price-to-win.

The boundaries are defined as follows:

  • Maximum budget is the maximum amount the customer has budgeted.
  • Addressable budget is the amount the customer has available for a purchase after deducting expenses associated with the purchase.
  • Minimum credible budget is the amount below which the customer doubts the credibility of obtaining an acceptable solution.
  • Minimum acceptable capability is the minimum capability acceptable to this customer.
  • Maximum justifiable capability is the maximum capability that this customer can justify. While more capability might be possible and available, this customer does not perceive a practical use; it would be considered “gold plating.”

Figure 2. Winning Price Window.
Figure 2. Winning Price Window. Use the WPW to compare and contrast competitors’ probable positions relative to yours. The absence of a scale reflects the relative nature of your assessment. For example, is your price higher or lower than competitors, and is it within the customer’s budget parameters? Do not expect quantitative precision.

Over time, the WPW becomes smaller, as shown in Figure 3, as the customer better understands organizational needs, potential solutions, and relative values. Your price-to-win process objective is to iteratively and more accurately define the boundaries of the WPW, and then to favorably position your price-to-win versus competitors.

Figure 3. Narrowing the Winning Price Window.

Figure 3. Narrowing the Winning Price Window. The WPW contains the winning price. Conceptually, these price-capability boundaries narrow as the customer better understands organizational needs and the values offered by potential solutions. Your theoretical but rarely achieved goal is to identify the actual award price prior to submitting a bid.

11. Refine your solution based on changes in the competitive landscape.

A continuing business development challenge is minimizing bias in price-to-win activities while implementing the result in capture planning activities. Attaining a price-to-win is iterative. Repeat tactical activities when changes in competitive intelligence dictate. Given new information, changes in assumptions, or identification of game changers, repeatedly refine your solution.

Competitive analysis plays a key role in determining the price-to-win range. Competitive analysis can help establish what your competitors’ bid and actual award prices would be based on prior similar contracts. There are a number of tools that support competitive analysis. For example, knowledge bases typically incorporate commercially available knowledge management tools and supporting techniques. Other sources of competitive intelligence include:

  • CRM systems to capture information on people and practices; the ideal solution is to set up an internal user network
  • Open-source information, including manual processes and automated tools
  • Analytical tools and report generators
  • Market intelligence reporting services for customer buying practices and tools
  • Commercial intelligence sources and publically available labor rate data, community conditions, and FOIA data, all obtained within ethical guidelines

Consider previous contracts awarded to likely competitors and the budgets for those acquisitions. Use findings to estimate where competitors might position their offers on the current opportunity. Similar contracts awarded by other customers may serve as additional data points.

Price your competitors’ likely solutions using the WBS developed for your own organization in a bottom-up fashion. Adjust prices to allow for changes in business climate, rates, technology, and other sources of information. Consider the current customer’s pressures and goals. Consider competitors’ historical and probable trends given the current environment and their own internal pressures. Provide input to the opportunity team so they can compare your competitor-priced solutions against your own solution.

12. Refine your price-to-win strategy based on changes to your solution.

When you’ve refined your solution, focus on influencing the customer to prefer your solution. You must convince the customer that your refinements add value, offer improved capabilities, prices, or both. If sufficiently early in the process, use your refinements as a reason to collaborate with the customer, identifying and confirming the underlying issues and requirements.

If the requirements are defined, use them to help refine the underlying issues, your solution, competitors’ potential solutions, discriminators, gaps, strategies, and tactics.

Assign responsibility for each refinement with an action item to a single, responsible person, whether they complete the action or direct the completion. Simply changing your solution without explaining how your changes benefit the customer is off-putting to the customer and often worsens your position.

Arguably, refining your solution is a capture team activity rather than a price-to-win activity. Base solution refinements on the customer’s perceptions rather than your own view of what you “know to be correct.”

If dealing with a budget-limited customer, ask:

  • Have we identified and removed nonessential features that add cost but might appear to offer minimal commensurate value?
  • Can we identify elements that could be made “optional” if the customer needs to further reduce acquisition cost?
  • Can we restructure the offering to better meet the funding profile?

If dealing with a capability-satisfied customer, ask:

  • Have we met the customer’s minimum capability expectations?
  • Have we included capabilities that could be eliminated to lower our price and yet remain competitive?
  • Can we add or substitute features offering greater capability and value than our competitors?
  • Can we convince the customer to raise expectations, making it harder for competitors to meet requirements?
  • Have we reviewed competitors’ likely offerings to identify new or overlooked approaches that we could incorporate into our solution at lower cost?

If dealing with an educated best-value customer, ask:

  • Have we maximized and prioritized the value-cost tradeoffs for major solution features?
  • What changes maximize value at the minimum cost?
  • Have we confirmed and reinforced the customer’s understanding of best value?

If dealing with a naive best-value customer, ask:

  • Have we attempted to educate our naive customer?
  • Do we have sufficient access, time, and resources to educate it?
  • Although we might disagree with the customer’s assessment, can we modify our proposed solution at acceptable risk? If not, should we no-bid?

The only aspect of capture strategy that improves your position with the customer is the tactical implementation. Internally focused aspects might be satisfying, but they don’t improve your position.

13. Focus pricing on value to the customer.

When it comes to presenting price, teams often overlook explanations of value—that is, the benefits customers will gain for the price they pay. Value is less tangible than price and is dependent on a customer’s budget and priorities.

For budget-limited customers, remove nonessential features that add cost without adding equal value. Sometimes, this means streamlining what you offer to better meet the customer’s funding. For customers looking for a best-value solution, maximize the value you bring at minimum cost. Look for the ways you offer value to customers—then, quantify and clearly explain it. Make it a point to show, in graphic form, what that value means for them.

14. Develop strategy to achieve the price-to-win.

Your price-to-win is a combination of your solution and price. Improve your position by analyzing relative costs and benefits of existing and potential features of your solution. Add features that offer the greatest added value at minimum relative costs. Eliminate expensive features that offer relatively minimal benefits.

For many organizations, developing a strategy to achieve the price-to-win marks the transition between the work of price-to-win analysts and the capture team that develops prices and refines the solution and then works collaboratively with the customer to influence it to prefer that solution. To minimize bias, many price-to-win analysts resist working on the solution because they often must reassess the refined solution. Accurately assessing a solution that you helped develop is difficult.

15. Incorporate customer evaluation processes into your pricing strategy.

Extending the principle that the only relevant view is what the customer believes, the customer’s method of valuing solutions is the only relevant approach.

Customers’ evaluation processes can dramatically affect the relative competitiveness of your solution. Customers with a rigidly defined and disciplined evaluation process, most common in government markets, seek to equalize evaluations to minimize bias, whether real or perceived. As a result, the evaluation is often based on the prior contract rather than the probable need.

For example:

  • A telecommunication services contract might specify a technology and quantity that was typical but will become obsolete.
  • Suppose the past contract included a line item for 1,000 pagers. The contract price was $100 per month, for an extended line item annual cost of $1.2 million.
  • Realizing few people continue to carry pagers, Bidder A assumes that only five pagers will be ordered under the new contract, so the contract prices pagers at $5 per month, even though their internal cost will be $90 per month.
  • The evaluated price, $5 each x 1,000 pagers x 12 months would be $60,000, a $1.14 million annual savings over the existing contract.
  • But if the estimated quantity is correct, the cost to supply the pagers will be $90 each x 5 pagers x 12 months, or $5,400.
  • Bidder A might then enrich the overall profit margin by quoting a higher margin on a different line item evaluated at lower-than-anticipated purchase quantities.

16. Recognize the impacts of game changers, including political, economic, sociological, technological, legal, and environmental (PESTLE) factors or events.

Add game changers to the contingency portion of your capture plan, and then repeatedly review and update them.

A game changer is information that invalidates your implicit price-to-win assumptions.

Confirm the existence of game changers by reviewing prior major losses, especially surprise losses. Did the award go to a little-known or unidentified competitor, for an unexpectedly low price, or to a new or unknown technology? Were the contract terms, timing of key events, or involvement of unknown personnel a surprise? If so, you encountered game changers.

Game changers might originate from the customer, your competitors, your organization, or external situational factors. Note that similar game changers affect both competitors and your organization. Figure 6 lists common game changers by origin. Some external situational game changers involve trends, such as global warming or the growing scarcity of specific resources. At what point do trends become relevant and significant?

Other game changers are sudden and more difficult to forecast, such as war, earthquakes, tsunamis, or industrial accidents. While you might not be able to predict certain events, you might opt to propose contract terms and conditions to reduce your risk.

COMMON GAME CHANGERS

Customer

Competitors and Your Organization

PESTLE (Political, Economic, Sociological, Technological, Legal, and Environmental)

•    Budget change (size, funding category, or timing)

•    Schedule change

•    Key personnel change

•    Revised priorities, objectives, or direction

•    New requirements

•    Gain or loss of strategic importance

•    Merger, acquisition, or divestiture

•    Loss or change of key personnel

•    Major cost or schedule overruns on other contracts

•    Teaming shift

•    Financial pressures from markets, management, or creditors

•    Changes in strategic objectives, processes, or organization

•    Recent losses or wins, related or not

•    Changes in government, elected, or regulatory officials; war or conflict

•    Changes in financial markets, cost, and availability of resources

•    Shift in social conventions or mores

•    Shift in the capability, availability, or cost of new technologies

•    Changes in laws, regulations, or the interpretation of regulations

•    Changes in the environment (incremental climate change, an industrial accident, or an abrupt climate event)

Figure 4. Potential Game Changers. Game changers invalidate your price-to-win assumptions. Identify reasons customers, competitors, and your organization might not act as anticipated. Determine if and how significantly trends will affect this procurement. For example, will a growing emphasis on green initiatives really affect this customer’s evaluation?

17. Align pricing strategy with your sales strategy.

It’s crucial for the sales team to determine the type of solution the customer seeks. Does the customer want the lowest price technically acceptable (LPTA), or does it need and want more features and innovation?

If the customer wants a leading-edge, innovative solution, then a pricing strategy that uses low-cost services and products, lean management oversight, and lowest-cost suppliers is a mismatch. On the other hand, if the acquisition is highly cost sensitive, the offeror must find a way to reduce the cost of the solution to meet the requirements but still provide value.

There are several ways to reduce costs while providing value:

  • Staffing mix that provides lower cost for highly regarded and positive elements and, conversely, higher cost for staffing that isn’t used very often or that the customer doesn’t value as much
  • Mix of low-cost and high-cost suppliers that achieve requirements
  • Lean management
  • Use of task managers as working staff
  • Creative use of senior, mid-level, and junior staff throughout lifecycle, awarding promotions and replacing staff with junior personnel

Common Pitfalls and Misconceptions

Belief that price-to-win is an externally set parameter

Price-to-win has nothing to do with your company’s cost or pricing ability. It’s derived from examination of customer and competitor behaviors and facts.

Failure to embrace price-to-win concepts

Misunderstanding the importance of price-to-win leads many companies to “lose on price.” Many companies think price-to-win is the lowest price they can set after examining their own bottom-up costing. This is not true and can lead to a loss.

Summary

  • Getting to a price-to-win target range is an iterative process that begins early in the procurement cycle and continues throughout the life of the opportunity and beyond to lessons learned after the win.
  • Information obtained about the customer, the competition, and one’s own organization are important ingredients in determining price-to-win.
  • Custom spreadsheets and market intelligence gathering are important tools for assessing price-to-win.
  • qAll things being equal, a winning price must offer value to the customer. It is up to offerors to learn from their customers what constitutes value to them.

Terms to Know

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