how to have better pricing discussions with your …
TRANSCRIPT
HOW TO HAVE BETTER PRICING DISCUSSIONS WITH PROCUREMENT
-April 2021
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Pricing is key:
Start with the wrong pricing and however well you manage the resource (utilization and talent structure), you will struggle to deliver good results to your client
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A FINANCIALLY HEALTHY BUSINESS STARTS WITH SETTING THE RIGHT PRICE
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60
15
8
Client service staff
Support Staff
Office Space
7 IT & Ops
2
Audit & Legal4
4 Biz Dev and other
100 % agency operating costs
75% 75% OF OUR COSTS GOES TO
PAY PEOPLE
Training, Travel
OUR ABILITY TO SERVICE OUR CLIENTS START WITH OUR PEOPLE
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• ‘Bait and switch’ resourcing
• Slow to replace resources
• Insufficient senior people available to lead the work
• Charging for ‘condiments’
• Lack of boundaries in the Agency / Client relationship
• Staff become overworked, underpaid, and underappreciated
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POOR DEALS LEAD TO POOR BEHAVIOR
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When the only lever is to cut the fee, and people are 75% of this, the seniority and experience levels will be quickly eroded
UNDERCUTTING OUR PRICES LEADS TO A VANISHING AGENCY
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…AT THE END OF THE DAY, ANYONE CAN DO IT CHEAPER
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A LESSON FROM THE PROCUREMENT EXPERT
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“This is the most expensive proposal we have ever seen”
“Your rates are need to be reduced by 10% next year”“Before we can
make a decision you need to sharpen your pencil”
“Conditioning”
“Our benchmarks show your rates are 20% higher than the next agency”
“Price is the most important factor in our decision” “If you don’t
cut your prices by 20% you will not go through to the next round”
COMMONLY HEARD PHRASES ABOUT OUR PRICES
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PROCUREMENT ARE PROFESSIONAL NEGOTIATORS
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Amateur Sellers Professional Buyers
…AND PROFESSIONAL BUYERS
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1. Fail to establish value upfront
2. Focus on defending costs instead of proving value
3. Believe all Price challenges are real
4. Willing to reduce Price without reducing value
5. Unwilling to walk away
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HOW PROCUREMENT SEES AN AMATEUR SELLER
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Critical Strategic
Acquisition Leverage
High
Low
MarketDifficulty/
Risk
HighLow Relative Spend
Limited choice but absolutely necessary for your business
High spend, select number of choices, involved in business
planning
Low spend, many choices, can easily be switched w/o risk
High spend, many choices, can easily be switched w/o
business risk
PORTFOLIO ANALYSIS : THE BASIC MODEL
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Critical Strategic
Acquisition Leverage
Buyer Power
Supplier Power
Balance of Power
High
Low
MarketDifficulty/
Risk
HighLowRelativeSpend/
Profit Impact
PORTFOLIO ANALYSIS: BALANCE OF POWER
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Limited choice but absolutely necessary for your business• Seek alternatives• Develop generic equivalents• Set performance targets from suppliers
High spend, select number of choices, involved in business planning • Continuous value improvement• Use transparency and open book costing• Seek and approve alternative sources• Unsettle the relationship to create supplier uncertainty
High spend, many choices, can be switched w/o risk• Short term deals, Reject price increases• Use of eAuctions to drive down price quickly• Aggressive negotiation• Be nasty!
StrategicCritical
Acquisition LeverageLow Spend, many choices, can easily be switched w/o risk• Blanket order• Bundle items• Use of catalogues to simplify transactions• Minimise attention
PORTFOLIO ANALYSIS: BUYER STRATEGIES
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PROCUREMENT’S GOAL IN ANY PRICING DISCUSSION
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IN THE ABSENCE OF VALUE, PRICE BECOMES THE ONLY ISSUE
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IN AN ENVIRONMENT WITH OVERSUPPLY,DIFFERENTIATION NEEDS TO BE A STRATEGIC FOCUS
….without a strong value proposition you are a commodity
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1. Use language that focuses on costs
2. Focus on cost components of a price (Inputs vs. Outcomes)
3. Allow only one submission instead of options
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THREE COMMONLY USED APPROACHES TO REMOVE VALUE FROM THE EQUATION
Change your language
Focus on Outcomes
Provide Multiple Options
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Change your Paradigm
Change your Language
Change your Behavior
IT BEGINS WITH CHANGING YOUR LANGUAGE SINCE LANGUAGE IS THE PRECURSOR TO BEHAVIOR CHANGE
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Cost Attributes Price Attributes1. Billable Hours2. Staff costs3. Resource allocation4. Utilization5. Overhead allocation6. Profit margin/markup
1. Specialization2. Demand for Services3. Culture4. Leadership5. Delivery6. Tools7. External Market Factors8. Insights
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RFP
LANGUAGE WE USE TO DESCRIBE OUR VALUE
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Outcomes(Results, market place
impact)
Outputs(Deliverables, work product)
Inputs(Data, research, hours, time of staff)
But more importantly, what is the client actually buying?
WHAT ARE WE SELLING?
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$35 $100 $12
GIVE YOUR CLIENT OPTIONS
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“Most people don’t know what they want unless they see it in context”
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– Dan ArielyPredictably Irrational (The Hidden Forces that Shape our Decisions)
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SO HOW CAN ONE CHARGE MORE THAN THE OTHER?
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1. Appreciate procurement as a profession. Having the right attitude is critical in developing creative solutions
2. Establish an internal process upfront to focus on the value of your services
3. Practice changing your language to change your behaviour (e.g., Price not costs)
4. Understand your client’s marketing objectives and talk about Outcomes then Outputs – and when necessary, Inputs
5. Provide three (3) options for every proposal to help define your client’s value
CONCLUDING REMARKS
