Price to Win: No longer a Black Art

Alex King, ShipleyBriefing

Endeavour

22nd October 2014

The basic methodology of pricing your products and services according to your relative value is for everyone who bids

The advanced parts of the methodology offer more value to companies who:

Who is PTW for?

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Sell complex solutions (e.g. a mixture of labour & materials, manufactured & supported, internally sourced & from suppliers)Often find price differences of more than 15% with competitorsCompete for International tendersSell infrequent or bespoke products / services

This presentation will show…

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Price to Win is a predictable and repeatable methodology to increase bidding success (i.e. not a black art)Three frameworks that form part of our Price to Win methodology that you can use)By playing to the strengths of your value and out manoeuvring competitors, you will increase your bidding success

Price to Win Introduction

What is it and why should I care?

Price to Win: No longer a Black Art

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Price to Win is “the highest price you can bid at and win”. It is effectively a measure of the value you create, relative to your competitors.

Defining Price to Win

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If you have no value then you are in a price war and you should create someIf you can’t create value then no-bid or get used to low margins

Purdue’s Chicken“Frank Perdue’s Chickens almost always sell for a premium of some 10 cents a pound over other chickens” this is due to “scientific breeding techniques, obsessive quality control, and artful advertising” 1

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PTW Myth #1: You have to bid at the price of stupidest bidder

1 The Winning Performance (1985). Donald Clifford & Richard Cavanagh

There are only two fundamental assumptions to Price to Win:

The implications of these assumptions are:

How can I be sure this works?

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Every bidder intends to make profit (i.e. a Business Case)There are a limited number of ways to make profit

We can define a limited number of options our competitors haveWe can use our competitive intelligence to measure the value of those optionsWe can position our bid accordingly

We model and analyse competitor benchmarks, then position our bid relatively. This is an iterative process, started as early as possible.

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How the output looks

Value is something the customer is willing and able to pay for

This is easy to measure, if the customer does not buy the lowest price bid then there is value in the delta. Likewise, if they opted for a lower priced, technically inferior bid then the additional capability did not equate to value for them.

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The goal of Price to Win?

2 Price to Win Survey (2014). Amplio Software

Our goal is to use a predictable and repeatable method to price our bid so that we win at highest price possible.

If we win at the highest price possible ~70% of the time, we will be more profitable than winning 100% of our bids as the lowest price bidder.

The jobs-to-be-done framework

Analysing what customers buy

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The jobs-to-be-done framework

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What job is this customer trying to get

done

What is the system the

customer uses to get the job

done

What is the weakest part

of that System?

This framework from Clayton Christensen provides a framework for the parameters we measure in order to quantify value

“ Customers aren’t interested in buying products or services per se. They have problems they want to solve and goals they want to achieve. These are jobs they want to do ” 3

3 The Innovator’s Solution (2003). Clayton Christensen

Transport for London (TfL) is investing in several major projects including HS2, Crossrail & Northern Line Extension

What job are they trying to get done?

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TfL Jobs-to-be-done example

Weakest part of the System: Signalling vrs Telecoms

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Research shows that some organisations have processes that make it very difficult not to accept the lowest price

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Customer buying trends

4 Bids & Proposals Customer Survey (2014). Amplio Software

Research by Aswath Damodaran 5 showed the average net profit of 5,891 companies was 8.32%

Companies must have a value proposition to sustainably earn more than this

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What is the average profit?

5 Margins by Sector (2012). Aswath Damodaran

In 1964 IBM launched the System 360 family of computer systems that were extremely successful at data processing. Hardware continued to be the weakest part of the system, until the standard market hardware became good enough for most customers. Microprocessors, and later software, became the weakest parts of the system (Intel created the first commercial microprocessor in 1971). IBM recovered it’s margin by becoming the second (now third) largest software company in the world, after Microsoft.

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Case Study: IBM

The Value Disciplines Framework

Analysing how companies compete

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Reasons Companies no-bid

6 Beyond ‘It’s Strategic’ (2012). Strategic Proposals7 How Technology is changing Bidding (2014). Amplio Software

>56% of the reasons most companies no-bid are internally focussed 6

In another survey, 77% said that ‘better competitive intelligence’ would have a positive or significantly positive impact on their bidding success 7

Everyone knows the story of two hikers who met a bear in the woods…

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PTW Myth 2: You need to know the customer budget for PTW

Focussing on the customer budget is like focussing on the bear! Customers can only buy what someone is willing to sell.

There are three generic ways companies compete. These are called ‘Value Disciplines’: 8 9

How companies compete

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Being the cheapestHaving the best qualityUsing customer intimacy

Aldi

Waitrose7-Eleven

You don’t need to be the cheapest:The American Business Conference (ABC) is a coalition of 100 midsize, high-growth companies from all industries. Membership is limited to companies that have doubled in size in the last 5 years.

3 in 4 members are not the industry’s low-cost producer. 10

8 Competitive Strategy (1980). Michael Porter. 9 Customer Intimacy and other Value Disciplines (1992). Michael Treacy & Fred Wiersema.10 See: http://americanbusinessconference.org/about-abc.php

The weakest part of Price to Win

Analysing how to make Price to Win better

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From our survey, few companies rated their tactical competitive intelligence ability as good or very good 11

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The quality of tactical CI

11 Price to Win Survey (2014). Amplio Software

If customers knew what prices bidders would submit then they wouldn’t need the expense of running a competition.

They are not there to do your job for you!

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PTW Myth 3: Your customer knows the Price to Win

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Finding Competitive Intelligence

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Finding Competitive Intelligence

Key Skills to take-away

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Use the Jobs-to-be-done framework to target how value is offered to your customerUse the Value Disciplines framework to analyse how your value is different from your competitors (even if you aren’t sure who they are)Create a plan to gather Competitive Intelligence for your organisation or bid to create actionable intelligence

“What is a cynic? A man who knows the price of everything and the value of nothing. And a sentimentalist, is a man who sees an absurd value in everything, and doesn't know the market place of any single thing.” 12

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PTW: Not for cynics or sentimentalists

12 Lady Windermere's Fan, (1892). Oscar Wilde.

The photos in this presentation are used under a Creative Commons license, credit for them is attributed to:

“Huawei awarded Addis Abeba light rail telecoms contract”. Source: http://www.railwaygazette.com/news/news/africa/single-view/view/huawei-awarded-addis-abeba-light-rail-telecoms-contract.html accessed: 24/08/2014

“Singapore awards five metro contracts”. Source: http://www.railwaygazette.com/news/news/asia/single-view/view/singapore-awards-five-metro-contracts.html accessed: 24/08/2014

“Crossrail awards signalling system contract”. Source: http://www.crossrail.co.uk/news/articles/crossrail-awards-signalling-system-contract accessed: 24/08/2014

“Deconstruction on Madison Avenue: Double Advertendres”. Source: http://craigmcnamara.blogspot.co.uk/2011/09/double-advertendres.html accessed: 24/08/2014

“Alfred Sloan”. Source: http://www.novavizia.com/5133.html accessed: 24/08/2014

“Harold Geneern”. Source: http://www.mbsportal.bl.uk/taster/subjareas/busmanhist/mgmtthinkers/geneen.aspx accessed: 24/08/2014

“Jack Welch”. Source: www.jasongrow.com-900 accessed: 24/08/2014

“Bill Gates”. Source: http://blog.operationhope.org/2012/04/special-from-bloomberg-businessweek-if-bill-gates-were-black/ accessed: 24/08/2014

“Steve Jobs”. Source: http://www.angeloakcreative.com/want-to-bet-i-cant-change-the-world-watch-me/ accessed: 24/08/2014

“A Good Woman”. Source: http://filmjournal.net/100films/2011/01/19/121-a-good-woman-2004/ accessed: 31/08/2014

“Out run the Bear”. Source: http://mseedideas.com/2012/04/09/just-outrun-the-bear/ accessed: 31/08/2014

“London Overground Capacity”. Source: https://www.tfl.gov.uk/travel-information/improvements-and-projects/london-overground-capacity accessed: 05/10/2014

“Wizard of Oz”. Source: http://lmarie7b.files.wordpress.com/2014/05/wizardofoz_4675.jpg accessed: 05/10/2014

“London Underground: Designs for Tube trains unveiled”. Source: http://www.bbc.co.uk/news/uk-england-london-29520761 accessed: 05/10/2014

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