The primary objective of a price-to-win (PTW) analysis in public sector procurements is to identify a price point that not only wins contracts, but also aligns with a company’s business and financial goals. While the straightforward approach of setting a single target price might seem logical, creating a competitive price range often proves to be more effective and strategic.
Maximizing Flexibility and a Competitive Edge
Public sector procurements can be complex, with varying requirements, budgets, and competitive dynamics. One of the most common evaluation models is “best value tradeoff (BVTO)” in which the evaluation states the winner may not be the company with the lowest price. A PTW analysis with a single target price can be too rigid in such environments, leaving little room for adaptation to the competitive environment or the customer evaluation model. A competitive price range offers flexibility, allowing companies to adjust pricing based on shifting factors, such as new cost information or evolving project scope. This adaptability is crucial in a sector where predictability can be challenging.
Mitigating Risk and Protecting Margin
Relying on a single target price in PTW analyses can be risky. Setting the price too low may lead to winning contracts that are unprofitable, while setting it too high could mean losing out to competitors. A competitive price range mitigates these risks by providing a lower bound that attracts bids and an upper bound that preserves profitability. This approach protects profit margins while allowing companies to remain competitive.
Accommodating Variability in Cost Structures
Public sector procurements often involve complex cost structures, including direct costs, indirect costs, overheads, and profit margins. Changes to each cost inputs can potentially drive large swings in the total evaluated price. A single target price can overlook these nuances, potentially leading to pricing that doesn’t cover all costs. A competitive price range accounts for variability in cost structures, enabling companies to set prices that reflect actual expenses and maintain a sustainable business model.
Enhancing Negotiation Opportunities
For those public sector customers that may allow price negotiations as part of their evaluation, a competitive price range can aid in determining the negotiation range. It provides a spectrum of prices that enable both sides to find a mutually beneficial price point. This flexibility can lead to more successful outcomes, as customers feel that their budget constraints and specific requirements are being considered. It also fosters stronger relationships, as it shows a collaborative approach.
While a single price might seem like a simple solution with conducting a PTW analysis, a competitive price range provides flexibility, risk mitigation, and enhanced negotiation opportunities. By adopting a price range when conducting a PTW exercise, companies can navigate the complexities of public sector procurement with greater agility, ensuring that their bids are competitive, profitable, and responsive to customer needs. This approach ultimately leads to more successful outcomes and stronger customer relationships. Contact us to learn more!
