In these days of slashed government budgets, price is even more of a factor now than ever before. Whether the acquisition specifies the best value or the lowest technically acceptable price (LPTA), doing your homework and sharpening your pencil to get the most competitive price is likely to be the difference between winning and losing a major competitive acquisition.
Many companies have great technical solutions, but winning a competitive acquisition requires a winning price and a great technical proposition. In today’s environment of tight budgets and low-cost awards, price matters more than ever. The winning price may or may not necessarily be the low price. But more often these days, it’s the low price. We seem to get into the mechanics of filling out forms and spreadsheets without giving much thought to what constitutes a winning prize. You need to get information in advance, do the analysis and look at yourself in the price mirror objectively.
What makes price matter so much these days is that you can win technically but lose on price. We hear this very often these days. What makes the difference? I don’t expect you to guess what the price should be. Hope doesn’t give you a win, but knowing your customer, your company, and your competition will bring you closer. You have to make it a priority to figure out what your target price range should be.
What most companies still do today is raise costs, apply a reasonable (or competitive) rate to the cost, and submit the price. Most of the time, pricing is accomplished at the last minute without giving much thought to what it takes to win. There are three parts to Price Matters: data collection, analysis, and making actual price decisions. This process continues throughout the entire proposal process (prerequisite stage, proposal stage, and post-proposal, but before final proposal review), and more importantly, the process begins sooner than you think. Developing and implementing a pricing strategy as part of the winning strategy is critical to winning; cannot be achieved at the last minute.
Most people believe that the only way to get the “right” price is to do a price to win (PWIN) which will generate a target price. Let’s set the record straight here: PWIN creates a winning range rather than an exact number that translates to the winning price. PWIN activities are intended to get you to create a range of winning objectives coupled with thoughtful actions to assess risk and capabilities; it is not a science or an exact number. It is a myth that PWIN is an exact magic number that can be calculated and used as a winning price. He weighs the prices he develops against the company’s capabilities and the risks his company is willing to take. The components of the winning price are determined from objective data and subjective data (objective examples: current labor data, customer budget or independent government-generated cost estimate, D&B reports on competitors, past and current contracts, bases competitor data and subjective examples: Internet searches, research, projections of indirect competitors and labor rates, interviews with current and former employees, your evaluation of your company, your evaluation of your competitor’s strengths and weaknesses).
While PWIN is not about developing an exact number, and should be viewed as a mandatory activity in developing a winning pricing strategy, it is a process that gives you guidance in considering variables such as rates, risk, capabilities, and creative pricing techniques. When you “choose” a rate instead of building a target range, you are playing darts: you may not get close to the target or consider the variables that will make your price a winning price. Coverage rates are not the only determinant of costs; Consider the need for technically compatible labor rates, escalation/de-escalation, and rate. Your best homework and analysis will consider price along with many other variables. Be serious about the process.
To develop a PWIN process that provides the data you need, you must gain insight into your customer, your company, and your competitors. Without all three knowledge bases, you’ll miss out on everything you need to develop a winning pricing strategy. Most people just focus on competitive analysis and skip the other two steps. Therefore, you would be dealing with partial information and probably incomplete results.
1.Knowledge of the client. “Must have” customer information includes summaries, draft and final RFPs, anticipated RFP release date and contract start date, contract length, prior purchase history, authorized program funding, program support funding deductions government, client staff and reserves, and independent cost estimation. Other questions could be: Are they experiencing budget pressure? What is your award history? Who are your favourites? Are they sensitive to the price of a single item? Are they price or performance oriented? Is the customer interested in something other than the requirement, such as a lower risk approach? Are they interested in the relative value of value-added features? Are the cool things you’re going to add high value or low value to the customer? How much would they be willing to pay for them in a better value purchase?
2.Knowledge of your company. Be realistic about your direct and indirect fees. What you did in history is not something you should repeat. Break the habit of saying “this is the way we’ve always done it.” Take an honest self-assessment – how others see you, including your clients, other companies and outside consultants. Learn about their win-loss history and why. Resist the temptation to overemphasize your strengths, but be realistic about your weaknesses. Do a top-down view by knowing your competitors’ past pricing behavior and current market conditions. Find out what the target range is. Do a bottom-up analysis so you know what your costs really are. Challenge those cost areas that fall short of the target. Note that a bottom-up analysis generally results in projections higher than the target range. That’s because estimators put everything they can think of. Give estimators guidelines so they don’t spend a lot of time cutting where a clear schedule and resource definition would help. In developing bidding strategies, include creative or new cost centers, consider de-escalation, seek quotes through competitive bids from the lowest supplier costs, design offsets, and seek corporate investment to show your commitment to the program. Teammate prices can get you in trouble. Know ahead of time what they are likely to offer, as their price may increase the offer.
3. Knowledge of the competitors. Most of the time, a PWIN only focuses on an analysis of the competition. This is short-sighted and only gives you part of the information you need. GSA Advantage, D&B, Internet searches and FOIA requests will give you information about competing companies and their contracts. Find out who your teammates are and how likely they are to bid. Gather information about what corporate investments competitors are likely to make in the project and what their likely approaches to bidding are. Find the little tricks competitors have used in the past to get lower prices and how aggressive their bids are. Do they intend to use a new work location to cut costs or infuse their workforce with improved productivity tools? Companies tend to do the same things over time. Consider if they are the incumbents because incumbents tend to take less risk and think ‘outside the box’ less. Consider using search services like GovWin (a merger of Input, FedSources and Deltek) and Tech America. Remember that competitive intelligence is 80% data collection, 15% creative search, and 5% instinct or luck.
The following are the key points to consider in developing a winning pricing strategy:
1. PWIN is not an exact number but a process to obtain price + capabilities + risk
2. Costs do not set the price, the market does
3. Gain customer insight
4. Competitor’s Likely Price Includes Bidding History and Aggressiveness
5. Get creative!
6. Timely decision making on pricing strategies
7. Work out your own costs early
8. Resist the technical temptation to overreach
9. It’s not just about completion rates
10. Are there certain prices that matter more? What is the customer focus button?
11. Teammates can ruin your price
12. Focus on the external: price matters!
When you price a project to win, developing your strategy that encompasses ALL factors will get you closer to making your bids a winner. That means considering your customer, your company information, and your competitor’s information. Without all three continually reviewed throughout the process, you’re likely to be guessing, rather than focusing your attention on the price range you need. Consider if the lower price is a factor and if your value-added items mean as much to your customer.
