edmond weiss

consulting

PricingStrategyforCompetitiveProposals (Andhowtoexplainthatyouarenotthelowbidder)

ed

on

Thisarticleappearedinadifferentformas LowBidDoesntAlwaysWininTodaysEngineer,SecondQuarter1999

ei s

co n

EdmondH.Weiss,Ph.D.

su

lt

in g

115CooperRd.,Voorhees,NJ08043 8567533440/edweiss@aol.com/www.edmondweiss.com

EachProjecthasaWinningPrice Formanyconsultantsandcontractors,thepricetheybidonthejobislittlemorethan whateverappearsinthelowerrightcelloftheirspreadsheet.Theyestimatetheir staffingrequirements,theequipmentandmaterials,andotherdirectexpenses;tothese theyaddoverheadandindirectallocations,G&A,andfees.Andthatiswhattheybid. Consultantsandcontractorswhoaremoresuccessful,though,derivetheirbidfroman estimateofanidealorwinningprice.Asillogicalasitmayseematfirst,successful projectsaredesignedtocomeinatapricethatwillmakethemespeciallyattractiveto theclientandalmostneversubstantiallymorethantheclienthasbeenauthorized(or intends)tospend. Partoftheinformationgatheringknownascustomerintelligenceconsistsinfindingthe plannedorestimatedpricetheclienthasinmind.Ingovernmentprocurements,thisis oftenalegislatedorofficiallyauthorizedamount,publishedingovernmentplansor inferablefromkeyphrasesintheRFP,suchasestimatedpersonyearsofeffort.But justbecausetheinformationisnotpubliclyavailabledoesnotmeanthatthesuccessful bidderisexcusedfromintelligencework:findingouthowmuchtheclienthassetaside, howmuchtheclienthasspentforsimilarprojectsorservicesinthepastEveryclient withexperiencedevelopsasenseofhowmuchthingsusuallycostincludingwhatthe consultantsdailyratesshouldbeandisnotlikelytobedissuaded. Tomakeasale,then,contractorsandconsultantsmustdefineapricetheywanttobidandthen adjusttheirofferinguntilitmakessenseatthatprice.Ifthenumberinthelowerrightcorner ofthespreadsheetistoohigh,theprojectmustbereconfiguredtoproducealower price.And,surprisingly,inmostcases,ifthenumberismuchlessthantheclient intendstospend,thisalsorequiresanadjustment. Figure1illustratesthisrecursion.Marketingconsistsintryingtopersuadetheclientto buywhatyouprefertosellatthepriceyoudliketocharge.Merchandising,incontrast, consistsinchangingtheproposaltosuitwhattheyclientisinclinedtopayeitherby changingtheapproachor,simply,chargingless.Thereluctancetomerchandise,an especiallycommonattitudeamongtechnicalprofessionals,isarecurringbarrierto makingthesale.

ed

www.edmondweiss.com

on

ei s

edweiss@aol.com

co n

su

lt

856-753-3440

in g
1

 Figure1TheMarketingMerchandisingLoop

Wh at th e Cu s to m e rs are Willin g to P ay

ed

www.edmondweiss.com

on

ei s

edweiss@aol.com

co n

Wh at Yo u Wan t to S e ll an d Ch arge

Me r c h a n d is in g

su
856-753-3440

Ma r k e t in g

lt
2

in g

TwentyfivePricingStrategies Whattheclientwants,theScopeofWork,ispartlypublicandpartlysecret.Thepublic partisrevealedinRFPs,IFBs,RFQs,andthewholefamilyoftenderdocuments.What theclientreallywants,orwouldprefer,orwouldsettleforthesearededucedfrom intelligencegatheringandaninformedreadingbetweenthelinesoftheofficial documents. Proposaldevelopers,therefore,needtoestimatetwoessentialvariables:exactlywhat theclientintendstospendandexactlywhattheclienthopestoreceiveforthat expenditure.Giventhesetwoestimatespriceandscopethenexttaskistodevelopa pricingstrategybasedontheintersectionofthesetwotargets. Themostobviousstrategytoofferexactlywhatwasaskedforatexactlytheintended priceisconsideredbymanyconsultantsapoorstrategy.Althoughthisseemsa reasonableofferonitsface,inmostcompetitivebidsitwillbebetteredbyanother strategy. Table1showstwentyfivepossiblepricingstrategies.Thisarrayassumesthatthereare fivedegreesoneachestimate:muchless,slightlyless,exact,slightlymore,andmuchmore. Theshadedcellsillustratethatanyofferpromisingmuchlessthantheclientsexpected scopeofworkirrespectiveofpriceisprobablyapoorbid;thatis,clientsdonot usuallyperceiveabargainwhentheyareaskedtogiveupmanyoftheservicesthey werehopingtobuy.Similarly,anyofferthatcostsmuchmorethantheclientintendsto spendwillalsohaveahardtime,since,nomatterhowattractivethepackage,theclient maybepowerlesstoapprove. Itshouldbeobvioustoalmostanyonewhohaseverboughtorsoldanythingthatthese ninecellsareapooroffer.Yet,everyday,consultantsandcontractorswhoareabad matchfortheclientsrequirementsoffertodoasmallfractionofthescopeofwork. Andstillotherswhodonotunderstandthenotionofawinningpricebidwhateverfar fetchedamountisinthegrandtotalboxoftheirspreadsheet. Evenaftereliminatingtheseninebadcellsfromthestrategymatrix,though,thereare stillmanychoicesremaining:
www.edmondweiss.com

ed

on

ei s

edweiss@aol.com

co n

su

lt

856-753-3440

in g
3

Table125PricingStrategies

SCOPE PRICE
MuchLess SlightlyLess Exactly SlightlyMore MuchMore

MuchLess

SlightlyLess

Exactly

SlightlyMore

MuchMore

+ !

+ + ?

lt su

Thestrongeststrategiesareinthe+boxes.Evenashallowexaminationofthearray showsthatbiddingslightlylessthantheclientanticipatedisthebeststrategy,sinceit leadstotwowinners.Chargingexactlywhatwasplannedworksonlyifmoreserviceis offered;andchargingmorethanwhatwasplannedworksonlyifsubstantiallymore serviceisofferedassumingthattheclienthasanydiscretionatallinexceedingthe presetlimit. The?cellsarestrategiesofuncertaineffect,thatis,strategieswithverydifferentresults fordiverseclients.Whilemostclientswillacceptaslightreductioninservicefora substantialreductionincost,manyclientswillacceptnoreductioninservice, irrespectiveofcost. Inthisconnection,thereareseveralquestionablestrategiesinvolvingamuchlower price.Why?Wouldntmostclientsbeattractedtoanofferwellbelowtheauthorized amountabargain? Theresultisquitedifficulttopredict.Consultantsandcontractorsshouldremember thattheauthorizationorbudgetforaconsultingcontractusuallyhasbeenrequested anddefendedbythepersonjudgingthebidorproposal.Ineffect,acceptingabidwell belowtheexpectedcostcouldembarrasstheadvocateandunderminehisorher persuasivenessintheclientorganization.Therearealsomanycases(forexample, constructionprojects)whereanunusuallylowbidisinterpretedeitherasincompetence (thecontractormisunderstandstheproject)orasvenality(alowball,offeredwiththe intentionofaddingchargeslaterintheproject).

ed

www.edmondweiss.com

on

ei s

edweiss@aol.com

co n

856-753-3440

in g
? ? +
4

s it

ei s

s
R&D

Ne w Go o ds

en

In t

Ne w Se rvic e s

al

on

n ic

Te c h

Co m m o n Se rvic e s

Co m m o n Go o ds/Bid- Quo te

ed

co n
P ri ce Se ns it i v it y

www.edmondweiss.com edweiss@aol.com 856-753-3440

su

TenWaystoJustifyaHigherPrice Incompetitivebidding,itisnotenoughtoselectawinningprice;thesuccessfulofferor mustselectthewinningprice,themostattractiveamongthecompetitors.But,asksthe novice,isntthatalwaysthelowestprice,orlowbid?Notnecessarily. Thetermsproposalandbidembraceawidevarietyofbusinessoffers,inonlysome ofwhichthemaindeterminantofsuccessistheprice,thelownessofthebid.Inother cases,though,wheretheclientislessclearabouttheworkthatneedstobedone,the racewillnotalwaysgotothecheapest.Figure2depictstherelativeimportanceofprice inaffectingtheclientschoice.

lt

in g
5

Thisfigureillustratesthecomplementaryrelationshipbetweentechnicalingenuityon theonehand,andaggressivepricingontheother.Atthetopofthepyramidare ResearchandDevelopmentprojectsandNewHardGoodstheareasinwhichthe clientusuallyhastheweakestconceptionofwhatneedstobedoneandhowmuchit shouldcost.Indeed,forsomeR&Dprojectstheclientisnotsurethatthefinal deliverablecanbeachievedatall! Ineffect,theclientforsuchaprojectisanovice.Nowmatterhowexperiencedtheclient firm,itcannotrelycomfortablyonitspasttoestimatethecomplexityandriskof solvingafrontierengineeringproblemordesigninganewgenerationofmachines.In thesecases,theclientdependsontheconsultanttodefinethescopeandprice.(And,in fact,thefavoredconsultanthasoftenbeeninvolvedinwritingpartsoftheRequestfor Proposals.) Generally,thenewertheproblem,thelessfamiliarthedomainofinquiry,theless compellingisalowbid.AsIlldiscussbelow,amoreexpensiveofferfromafirmthat reducesthedecisionanxietyfortheclientwilloftenprevailoverthelowbid. Highpricesarefarmoreproblematicalinthelowerhalfofthepyramid.Here,the clientsknowmorepreciselywhattheywantandaremainlylookingforabargain.In extremecases,theyareabletoshopfromcatalogsofstandardproducts(machineparts) orcommoditylikeservices(testinglabs).Theseoffersaremorecorrectlyunderstoodas bids,ratherthanproposals,sincethepricepageisoftentheonlypartofthe documenttheclientcaresabout. Whentheofferedpriceisslightlyhigherthantheclientintendedtospend,the consultantmustofferslightlymore(orperhapsmuchmore)servicethantheclient expected.When,inacompetitivebid,theofferedpriceishigherthanthatofacredible competitor,thentheconsultantmustofferatleastslightlymorethanthecompetition. Eitherthroughexplicitpromises(whenappropriate)orimplicitassurances(when explicitpromisesareinappropriate)theconsultantshoulduseoneofthetenbasic argumentsbelowtojustifythefactthat,althoughthebidisnotthelowest,itisthebest. Table2summarizestheseappeals: Thefirstnineofthesetenappealsare,clearly,variationsonthesametheme:exceedingthescope ofwork,doingmorethanrequiredbycodes,standards,orprocurementregulations.Ineach appeal,theclientreceiveseitheramaterialbenefit(suchasreduceddownstreamcosts) oranonmaterialbenefit(suchaspoliticalfavor).Incompetitiveproposals,itisalso usefultocontrastthesebenefitswiththesmallerbenefitsinthecompetitorsoffers.
www.edmondweiss.com

ed

on

ei s

edweiss@aol.com

co n

su

lt

856-753-3440

in g
6

 ThetenthappealImpliedServicealsopromisestoexceedthescopeofworkbutin amorecomplicatedandpotentiallyinappropriateway.Itargues,ineffect,thatmost projectswillnotproceedasplannedbyeithertheclientortheconsultant/contractor, thatchangesareinevitable,eveninuncomplicatedshortdurationengagements. Moreover,itpresumesthatcontractmodificationsandchangeordersareanxiety causingfortheclient,sometimesevenembarrassingorharmful.(Thatiswhy,inmy ownprojects,Inearlyalwaysbudgetenoughtoallowforthesecontingencies;my businesspracticeistograntnearlyallrequestsfromaclientwithoutrequiringachange order.Ofcourse,Ialsoadjustschedulestoreflectthechanges.) Buthowcantheconsultantcommunicatethisargument?Surely,noonesuggeststelling theclientthatthebudgetisdeliberatelyheavytoallowforcontingencies! Alas,theonlywaytoexploitthisjustificationforhighercostistohavearelationshipin placewiththeclient,arecordofpastengagements,sothattheclientunderstandsthe consultantsattitudetowardchangesandmodifications.Inthesecircumstances,the clienttradingmoneyforreducedanxietywillbelessputoffbythepriceandless inclinedtoshopforalowerbid. DuringmyyearsofhelpingR&Dfirmswriteproposalstogovernmentagencies,I becameawarethatareputationfordoingonlywhatisinthecontracteventually harmscontractors,evenwhentheybidalowerpricethantheircompetitors.Most clientsnomatterwhattheysayinpublicpreferalittlehigherpriceandthefarlower stressassociatedwithamorelooselybudgetedproject.
www.edmondweiss.com

ed

on

ei s

edweiss@aol.com

co n

su

lt

856-753-3440

in g
7

Table2ArgumentsSupportingaHigherPrice Appeal
Precision

Explanation
Theprojectexceedsthespecifications,especiallywhentheclientasksonlyfor codeminimumsandtheconsultantdisputesthewisdomofthesestandards. Thedesigncontainsaddedlayerstoprovidesafetymarginsandminimize downtimeforrepairsandmaintenanceorschedulingsurprises. Theconsultantwillusesuchmethodsandmaterialsandanticipatedownstream eventssoastoensuretheviabilityoftheprojectbeyondtheplanninghorizonof theclientorganization. Theconsultantremindstheclientthatcertainpersonnelandmaterialsare,at themoment,inshortsupplyandmustbeobtainedatapremium. Theconsultantorcontractorwarrantstheproductsandserviceinsome exceptionalway,removingsomeofthedownsiderisktotheclientbymaking allorpartofthefeecontingentorrefundable,orbyguaranteeinglater maintenanceandsupportservicesatnocharge. Theconsultanthasselectedthisprojectasashowcase,promisingspecial attentionfromthecorporateleadershipandpledgingtostaffitwithstar investigatorsandresearchersineffectassigningpeoplewhoareoverqualified and,therefore,exceedthespecification. Theprojectusesmaterialsandmethodsthateliminateothercosts,suchas goodswithamuchlongerdutycycle,technologywithoutconsumables,or internalsubsystemsthateliminatetheneedforcertainexternalsystems,suchas inspectionandsecurity. Theconsultantorcontractorpromisestostaffsomeoftheprojectwithlocal workers,choseninconjunctionwiththeclient(eventhoughthelocallaborrates arenotthemostattractiveorthelocalworkforcethebestqualified),thereby providingastrongpoliticalbenefittotheclient. Theconsultantorcontractorisasociallydeservingbusinessperson,entitled eithertoofficialgovernmentsetasidesortounofficialspecialconsideration,the socialbenefitsoffsettingsomeofthediseconomies. Themostdelicateofallargumentsisthenotionthattheprojectbudgetishigh enoughtosupportchangesandadditionswithouttheneedforchangeordersor contractmodifications,anarrangementthatespeciallyappealstomany governmentclients.

Redundancy

Durability

Guarantees

TopPeople

Offset

JobCreation

ed

SocialBenefit

ImpliedService

www.edmondweiss.com

on

ei s

edweiss@aol.com

co n

Scarcity

su

lt

856-753-3440

in g
8

ed

www.edmondweiss.com

on

ei s

edweiss@aol.com

s
856-753-3440

co n

BestandFinal Onceaproposalisonthevergeofacceptancebyaclient,theconsultant/contractorwill oftenbeaskedforthebestandfinaloffer,thelowestpriceheorshewillacceptforthe engagement.Here,theconventionalwisdomisthatthewinnerwillnearlyalwaysdrop thepriceslightly.Therationaleisthatmostclientswhobuyprofessionalandtechnical servicesbelievethattheestimatesareinflatedabitandcanbetrimmed.Overtheyears, ofcourse,thisbecomesaselffulfillingprophecyasbiddersanticipatethebestandfinal transactionandinflatetheirestimatesinresponse. Myfinaladviceisthatconsultantsandcontractorsshouldalwaysreducetheirbidsslightly atthispoint,butalsoshouldremoveanitemortwofromtheStatementofWork,typicallyitems includedintheplanforjustthatpurpose.Ofcourse,everyoneknowsthatestimatesare impreciseandeveryoneknowsthatthereisoftenextramoneyforimpliedservice. Butitisstillbest,though,tosustainthefictionthatthebudgetisaustereandbasedon anobjectiveanalysisofthetaskstobeperformed,ratherthanonwhatusuallywins:a intelligencebasedestimateofthewinningprice.

su

lt

in g
9

Seminars, Courses & Speeches Business/Professional Communication

How to Sell in Writing
(Proposals & Business Cases)
Themostimportantbusinesswritingistheadvocacydocument,thepitchfor fundsorapproval. Presentingthecasewithlogicandpersuasiveness

How to Write Globally

Emphasisandmakingyourpoint Twentyflawsinfirstdraftsentences Stylecheckingsoftware:Canyoutrustit?

The Art of Effective E-Mail

Creatingusefulhandouts Touseemailwell,thewritermustexploititsstrengthsandadapttoits limitations.

on

ed

Edmond Weiss Seminars Phone: 856/753-3440

ei s

Strategicplanninganddesign Managingstagefright UsingPowerPointandotherpresentationtools Handlingquestionsandobjections

Attentiongettingsubjectlines Emailstyleandgrammar Disciplineandetiquetteforemailers Toattachortoembed

115 Cooper Road edweiss@aol.com

The Art of the Pitch

Awellmadepresentationisasmallfiveactplay,whereeachelement contributestoeffectiveness.

co n

Final Draft: The Especially Clear Sentence

Goodwritingisrewriting;onlyrevisioncanassureclarity,correcttone,freedom fromerrors,andreadability.

su

Editingforclarityandreadability Screeningforfigurativeandidiomaticconfusion Designingaccessiblelayoutsandappropriatefeedbackpaths

Voorhees NJ 08043 www.edmondweiss.com

lt

Usingbusinessgraphicstodemonstrateandprove Internationalbusinessrequiressensitivitytothelanguage,culture,and expectationsoftheinternationalbusinesspartner.

in g

AnalyzingyouraudienceandWinStrategy

Technical Communication
A Writing System for Technical Professionals
Technicalprofessionalscannotachievetheirprofessionalgoalsunless theywritetheircorrespondence,reports,anddocumentationwith powerandprecision. Creatingdocumentsasengineeredinformationproducts Eliminatingcommonerrorsandtimewasters Writingfornontechnicalreaders AlthoughcustomersandclientsaroundtheworldreadEnglishquite well,itisstillnecessarytoeditinternationaltechnicalinformationfor theE2reader. Makingdocumentsculturefreeandculturefair Correctingproblemsofstyle,idiom,andsyntax UsingcontrolledEnglish Adaptingtolocalsensitivitiesandcultures Amanualisadevicethatsupportspeopleintheirwork;whenwell designed,itteachesprocedures,enforcesstandards,andsavesmoney. DocumentingISO9000andotherqualitystandards Replacingunreadableandunmaintainableprosewithscripts,tables, anddiagrams Testingforusabilityandenforceability Designingmodular,maintainablepublications Storyboardingandprojectmanagement Thosewhouseinformationtechnologyandthosewhocreateoracquire itmustcommunicatetheirneedsandexpectationsclearly,especiallyat thebeginningofthedesigncycle. HowUser:Developercommunicationfails BeyondtheWaterfallModel Toolsandprocessesforfunctionalspecification

The Craft of User Requirements & Functional Specs

ed

Edmond Weiss Seminars Phone: 856/753-3440

on

ei s

115 Cooper Road edweiss@aol.com

Effective Quality Manuals/ Usable Procedure & Users Manuals

co n

su

Preparing English Tech Documents for International Readers

Voorhees NJ 08043 www.edmondweiss.com

lt

in g

Organizational Communication
Meetings that Work
Meetingsshouldbeenergizingandproductiveneverboringora perceivedwasteoftime. Objectivesandagendas:stayingonmessage Twowarringcultures:ratificationvs.exploration Rolesandgamesplayedbyparticipants Secretsofmasterfacilitators Culturalvariablesininternationalmeetings Despitethearrayofelectronictimemanagementtools,toomany professionalsfeeloverworked,stressed,andneverquiteontopof theirwork. Attitudesabouttime Fiveimmutablerulesoftimemanagement Timemanagementtrapsandhowtoavoidthem Productsandtoolsandhowtochoose/adaptthem Gettinglongtermgoalsandprojectsintoyourshortterm calendar Anurgentneedforinternationalbusinessprofessionalsistolearn, andadaptto,thecultureofthecommunitiesorcountrieswherethey wishtodobusiness. Dimensionsofdifference Contextandcommunication Individualismversuscollectivism Timingandpacing(thehiddendimension) Projectsneedfunding,capital;eventhebestideascanfailforlackofa convincingbusinessplan/case. Whatimpressesfundingsources Missions,visions,andgoals Thelogicofthebusinesscase Clear,persuasivelanguageandgraphics Presentationsforexecutivesandsponsors

Theres Only Now:

Managing the Professionals Time

ed

Edmond Weiss Seminars Phone: 856/753-3440

on

Business Plans & Cases

Turning Words into Money:

ei s

Raising Culture Consciousness

115 Cooper Road edweiss@aol.com

co n

su

Voorhees NJ 08043 www.edmondweiss.com

lt

in g

Speeches/Short Programs for Professional Gatherings and Meetings

How to Sell an Idea

Whywontpeoplefollowyouradvice?Thereareeightbarriersthat keepusfromacceptingnewplansandapproachesandspecific techniquestoovercomethem. Thekeytomentalhealthandproductivityonthejoborathomeis equilibrium:keepingalloflifeseightcompetingvaluesinbalance.The tendencyistoneglectsomewhilepursuingothers,apracticethatleads toanxietyandalienation. Doyouhavetroublegettingyourpointacrosstocoworkers?Amemo isNOTaworkofliterature,but,rather,anengineeredproduct, designedforclarity,power,andspeed.Twelvetacticsincreasethe chancethatamemo(oranemail)willberead. Inschool,welearnwaystoimprovethetruthbypuffingupour writingwithwordsthatinflate,obscure,anddisguise.Businessand professionalspeechandwritingarefilledwiththesebadlanguage habits,whichmakeussoundasthoughwearehedgingandevading evenwhenwehavenothingtohide. Isemailtheendofcorrectcommunication?Dospelling,punctuation, andgrammarmatteranymore?Onlyasmuchastherecipientofthe messagematters.Allprofessionalsshouldcareabouttheimagethey communicate,evenintheirinformalmessages. ThemostimportanttechnicalquestionisHowsBusiness?Technical professionalsmustlearntopitchimprovementsandchangesintheir departmentsthroughbusinesssavvybusinesscases:proposalsaimed atonesownmanagement.Businesscasesmustshowhowthenew proceduresortechnologywilleithermakeorsavemoney,andwithin anacceptablenumberofmonths.

The Secret of Professional Fulfillment

Re-Inventing the Memo

The Odor of MendacityWhy People Dont Believe You Anymore

Does Grammar Count in the Era of E-Mail?

ed

Edmond Weiss Seminars Phone: 856/753-3440

on

Business Basics for Technical Professionals

ei s

115 Cooper Road edweiss@aol.com

co n

su

Voorhees NJ 08043 www.edmondweiss.com

lt

in g