Price always matters. But price is not always the most important factor. If it was, no one would buy iPhones. With a consumer product, Apple succeeds even though their value proposition is completely intangible and unquantified. In a written proposal submitted to an organization, you’re going to need different strategies. To win with a higher price, you must convince the customer that you’re giving them something that makes the price difference worth it.
In a competitive procurement, to avoid picking the lowest cost bid and to pick the proposal that costs more, the customer has to do one of two things:
- Decide that all the other lower-priced proposals are unacceptable.
- Decide that the higher priced proposal is actually a better value.
What is acceptable?
One strategy you can take is to prove that any approach that produces a lower price will result in unacceptable sacrifices. Just claiming it won't be enough. You have to prove it. If you are certain of the approaches that your competitors will take and what the customer considers unacceptable, this can be an effective strategy. However, companies are often surprised by a customer’s willingness to accept less to get a lower price and by the creativity of their competitors. If you are not certain, then you might want to make use of this strategy but not completely depend on it.
How does the customer know which is the best value?
The easiest way for the customer to justify selecting a proposal because it’s a better value is when they can objectively prove that it provides value greater than any difference in cost. If they can quantify the value difference and show that it’s greater than the price difference, they have a strong argument. They might still base a decision on value when they can’t quantify the difference, but it’s a lot harder to for them to justify that decision.
A good example of how this can be done relates to maintenance costs. It might be worth it to pay more for higher quality parts if it lowers the costs of maintenance more than the higher cost of the parts. In other words, it’s worth it to pay more upfront if it quantitatively lowers your costs over the long run. Another example relates to automation. Paying more upfront for an automated solution might result in lower long-term labor costs.
Saving money over the long term is not the only value-based strategy that’s possible. It’s just one of the easiest ways to convince a customer that a higher proposal price results in spending less. Sometimes an offering can be better because it delivers more or produces better results that have value. It might be worth it to the customer to pay more to get more. But again, to be convincing it’s best if you quantify what they are getting and show that the value it represents is worth any difference in price.
Assessing value is a return on investment consideration
One way to look at these approaches is as investments that generate a positive return. The customer could take the lower price, but you're asking them to invest in a higher price in order to achieve a greater return. If you can quantify that return, it will be a lot more credible and more convincing to a customer who is skeptical when they see the term “investment” in a proposal.
Value impacts your corporate strategies as well as your bid strategies
It’s much easier to win by having the lowest price. But it’s much more profitable to win with a price that’s not the lowest possible. The problem is you can never tell if someone else is going to undercut your price. If you are going to compete on price and remain profitable, you have to be really good at it. And even if you are, you might want to hedge your bet and deliver a value proposition that proves your offering is the best trade-off between price and other factors.
While being able to explain and prove your value proposition is vital when you expect competitors to undercut your price, it is also a good idea to do so when you’re going in with what you think is the lowest price possible. Training your organization to think in terms of value and being able to prove it is part of how you achieve a win rate that continuously increases over time.
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