The Competitive Tender: Sellers Can’t Expect Buyers To Be Monogamous!
Don’t be taken aback when the buyer seeks competing quotes. Instead, only get surprised if he, or she doesn’t. A sales strategy that assumes buyer monogamy is a dangerous one.
The Illusion Of The Monogamous Buyer!
Sellers should never get complacent. Don’t let an apparent coziness fool you into thinking that the buyer is going to be monogamous! In even the most exclusive B2B engagement the prospect of the buyer flirting with your competitors is high.
Never Get Complacent – The Competition Is Looming!
Only the bravest and perhaps the most foolish buyer does not include some element of competitive tendering or referencing in making the purchase decision. The only question is at what stage will this happen and in what form.
The bedrock of corporate buying is the competitive tender. It is the holy grail of professional buying. After all, it almost goes without saying that competition drives down prices. It is the muscle behind the professional buyers ability to secure a better deal.
Are you ready should the buyer seek comparative quotes?
To expect buyers not to ‘go to the market’ is to expect them to act against their very nature. Yet, as salespeople we expect the buyer to be monogamous. Seller should always be prepared for competition.
Why Buyers Can’t Be Monogamous!
The buyer has a responsibility to spend the company’s money wisely. That means:
- To ensure the best value for money if not lowest price.
- To follow the procurement process and procedures laid out.
- To comply with any legal statutes.
- To justify any decisions made.
The implication is that the buyer has to talk to more than one supplier, the only question is when this is done (as in at what stage of the buying process) and how many potential suppliers the buyer will approach.
What is the incentive for your buyer to get competing quotes?
As sellers we must also realize that most buyers are in some way rewarded for getting a lower price. That may be indirectly in form of budget that is available to be spent elsewhere by his/her project or department, or directly in terms of a bonus paid on savings achieved. So, on several levels talking to competing suppliers is in the buyer’s self interest.
Buyers Must Justify Supplier Selection
A buyer has to expect to be asked, by his or her colleagues, such questions as:
- Could it not have been bought cheaper?
- How many suppliers did you talk to?
- How many quotes did you get?
- What reduction did you manage to negotiate?
Procurement in particular is likely to ask these question, but they are also likely to be asked by the senior executive who must give final approval for major purchases.
Will procurement ask questions about your pre-selection as a supplier?
The implication is that buyers can’t really be monogamous in their discussions with suppliers.
The Perils Of Buyer Monogamy
A fool and his money are easily parted. But it is only a foolish buyer that leaves him or herself at the mercy of just one supplier when it comes to getting the best price.
The buyer that talks to, or is seen too early to focus in on, only one supplier runs the following unnecessary risks:
- Choosing a less than optimal solution and not being able to justify it later.
- No fall back position if the prematurely chosen supplier fails to cross the line.
- Little leverage in negotiation and being taken advantage off by a supplier who sees no competition.
- Open to ridicule or censure for not following proper/mandated buying procedure.
- Allegations of closeness to a supplier or potential conflict of interest.
These are just some of the reasons why it is remiss of any buyer not to follow at least some elements of competitive tendering or referencing, even if it is not mandated by corporate procurement policy.
Why You Can’t Rely On Buyer Monogamy
If the buyer is only talking to one supplier before signing a deal he, or she will need to contact other suppliers, the only question is how and how many.
The buyer’s approach will be influenced by factors, such as; the importance of the product category to the buying organization (including strategic importance, financial impact and supply risk).
What is stopping your buyer from talking to some of your competitors?
Obviously getting the lowest price matters more in some categories than others. But even when the purchase is weighted in favour of non-price variables a strong point of competitive reference is importance.
In general however, one supplier is not a sufficient reference point for any important decision. If nothing else the buyer needs to do a ‘sanity check’ on your pricing and terms. He, or she would be remiss not to validate your solution and it’s pricing against others in the market.
If your solution is not going to withstand competitive comparison then that is a problem that the buyer needs to know sooner, rather than later.
Can you help the buyer to validate your price and proposition without talking to competitors?
Getting competing quotes or proposals takes time. If the solution being bought is complex it makes sense to avoid getting into all the detail with a large number of suppliers – it is simply going to take too much time and drive up the cost of buying.
At the same time however talking to just one supplier never really makes sense. Buyers need the insurance of talking to either a few or many suppliers, depending on the nature of the purchase and the supply market involved.
Retro-Fitting The Competitive Tender
Even the most entrenched supplier is vulnerable to a ‘let’s get a second quote’ statement from a member of the buying team.
Now in some cases the buyer will dupe internal requirements, or standards regarding competitive sourcing by retro-fitting the competitive tender process to an already made decision.
Can you help the buyer to justify your selection after the decision has been made?
That means picking a solution and supplier first and then applying the veneer of competitive tendering second. This is a more comforting situation for the supplier in waiting, however retro-fitting the tendering processes can result in surprises, including;
- The discovery of a competing supplier alternative that is simply too good to overlook.
- The emergence of a new lower pricing standard to which the incumbent will be subject.
When it comes to sales forecasting, it can also push out expected closing dates quite considerably.
The Implications For Sellers
1. Sellers need to understand how the buyer will deal with issue of competitive sourcing, for example:
– Is the buyer talking to or going to talk to another supplier, or planning to go to tender?
– How will the buyer validate your pricing relative to the competition and justify your selection if asked?
– Is what you are selling strategically important to the buyer?
– Are you a strategically important supplier in the buyer’s eyes? (You can use one of the procurement portfolio tools (the Kraljic or Chessboard model) to find out.)
The seller needs to plan for different scenarios in respect of the above questions.
2. The seller needs to understand and shape the buyers should cost estimate and how it is arrived at. If it has been robustly devised (e.g. based on a market analysis) and is consistent with the incumbent supplier’s pricing, getting quotes from other suppliers may not be necessary.
If the suppliers pricing is consistent with the buyer’s expectations of what it should-cost, a competitive tender may not be required. For example the buyer may use industry norms or past prices paid as the criterion to set a suppliers prices in a competitive context and therefore eliminate the need to get competing quotes.
3. Closely related to the issue of competitive sourcing is the question of supply market analysis. The buyer who has reviewed what is available in the marketplace, including the competitive positioning of different suppliers, pricing norms, and so on is in a better position to pre-select a supplier and to justify that pre-selection later.
It is therefore the role of the supplier to test and to build the buyer’s understanding of the supply market. That includes providing buyers with access to analyst and other reports on the supplier’s industry.
4. The seller needs to understand the requirements of the buying organizations procurement policies. That includes when a competitive tender is required, the validation or supplier pricing, etc. If the buyer does not follow these processes then approvals may not be forthcoming.
5. Many see the competitive tender as a real ‘slap in the face’ for the seller who has been involved early in the buying cycle. In this instance the seller has helped the buyer to define requirements and the ideal solution only for the buyer to take the definition and get others suppliers to tender for it.
The supplier who is involved early needs to plan to maintain his, or her position in the face of a competitive tender situation. The seller who is involved in developing the specification will seek to:
– Incorporate aspects relating to his/her competitive advantage and therefore preclude other suppliers
– Hold something back so that it can used as its exclusive ‘special sauce’ when it comes to preparing its own tender response.
6. Don’t get drawn into negotiations too early and make sure you leave something in reserve for the final negotiation, or competitive tender situation.
7. Although many buyers are obsessed with price, this is not the only factor in most buying decisions. The seller must focus the buyer on all aspects of the value equation, including total cost of ownership, risk, strategic fit and so on.
The sellers challenge is to move the conversation off price and onto value. That is the best way to beat competitive quotes and to help the buyer can justify your selection.
This article article was written to provide a buyer perspective on an article written on The Harvard Business Review Blog by Reed K. Holden.