I had an interesting email from a pricing friend of mine asking for pricing advice. Before sharing his email and my response, here is a quick story to show how hard this can be.
In 2011 I published my pricing book and started giving keynote addresses. All of my early speeches were for free. Then one client asked the hardest question ever, “How much do you charge?” I was dumbfounded. Here I was, a pricing “expert” unable to answer that one question. I had to phone a friend. His advice was to step back, think about the basic pricing principles and apply them. Great if not obvious advice. I did the work, picked a price and won that gig, which probably means I underpriced it. The point is, even pricing people need help, especially when it comes to our own incomes.
Now for the email:
Wonder if you can help me. We are in a tough bidding situation to win some consulting work. We and the competitor (another well known pricing firm) have both met with the client and concurrently trained the prospective client to educate them on Value-based pricing, how they can improve upon their pricing practices and processes, etc.
Both firms have submitted proposals to conduct work and we had to re-submit a new price last week as procurement asked us for our best offer. We dropped our price about 5%. Yesterday, procurement came back to both bidders and again asked for another drop in price to keep within their so-called budget.
What would you do or recommend at this point? Our competitor is larger but does not have all the experience we have for this client, though the client is doing a good job suggesting we’re very equal.
Before I show you my response, here are some general thoughts:
First, notice that the client is trying to convince the vendor there is no differentiation. This is a game. If there is no differentiation, then the only thing the vendors can use to compete is price. Hence it is in the client’s best interest to minimize any perception of differentiation. The only way to know if this is true or not is to have a champion inside the client that will share the truth. Procurement people will almost always mislead vendors in this way.
Next, notice the client claimed to have a low budget. Again, this may or may not be true (likely not when it comes from procurement). This is another common ploy used by procurement to gain concessions.
With these thoughts in mind, here is the advice I gave:
My inclination would be to not budge. Here’s why:
– procurement rarely has the power to choose a vendor. The decision has probably already been made. You’ve already won or lost the deal.
– procurement always plays games to get to lower prices. It’s their job.
– if there really is a budget issue they should tell you what the budget is so you can change the scope of the engagement to meet their budget
– in negotiations we never concede anything without getting something in return. What are you asking for in return?
– as a pricing company, you should demonstrate good pricing practices during these negotiations.
However, I can think of one mitigating factor that may drive you to a bigger discount. If this one deal is extremely important. Do you need it to pay the bills? Is it strategic so it leads to more business? Even if this deal is critical to you, I still think it’s unlikely that the price change makes or breaks the deal for you.
Now my question for you readers: What would you have advised them? Why?