Price-to-Win is Not the Only Tool in the Pricing Toolkit

Over the years, I have often been asked by both my internal and external clients – “What’s the price I need to be at to win?”. That can be followed up with “I don’t need a complicated strategy, just tell me the price”. Unfortunately, there is no single “right” price that will win a procurement (which is why I prefer to provide a competitive price range – a little foreshadowing for next week’s blog). Incorporating a price-to-win (PTW) exercise is a popular strategy by companies, aiming to set a price that not only wins the contract but also meets the profitability goals of the company. While PTW has its benefits, it is not a silver bullet solution for winning public sector procurements. Here’s why relying solely on PTW can be problematic and why a broader approach to pricing and procurement strategy is essential.

Price-to-win Process

The price-to-win process focuses primarily on the competitive pricing aspect of a bid, which is crucial but not the only factor in winning public sector contracts. The PTW outcome usually focuses around determining the lowest price that can still be profitable while beating competitors. This narrow focus can overlook other essential elements of a successful bid, such as quality, value-added services, risk management, compliance, and innovation. Winning public sector contracts involves a combination of these factors, not just price.

Risk of Price-Driven Decisions

Over reliance on PTW can lead to price-driven decision-making, where cost-cutting becomes the central strategy to remain competitive. This approach can carry significant risks, including:

• Quality Reduction: Aggressive cost-cutting to achieve a winning price can lead to a reduction in quality, impacting the final product or service that will be delivered to the customer.

• Reduced Profit Margins: A PTW strategy that pushes prices too low might result in minimal profit margins, making it challenging to maintain business sustainability and reinvest in growth and innovation.

• Limited Flexibility: Companies that focus solely on PTW without a more holistic pricing strategy might find themselves constrained by the narrow margins, leaving little room for flexibility and adaptability in case of project changes or unforeseen circumstances.

Overlooking the Value Proposition

Public sector procurements are often about value, not just price. The Federal Acquisition Regulations (FAR) part 2.101 states “best value means the expected outcome of an acquisition that, in the Government’s estimation, provides the greatest overall benefit in response to the requirement”. That does not necessarily mean the lowest price always win. PTW strategies might overlook the value proposition that a company brings to the table, such as unique capabilities, proven experience, superior customer service, or innovative solutions. By focusing solely on pricing, companies can miss the opportunity to differentiate themselves from competitors based on these value-added factors, which are often critical in winning public sector contracts.

Importance of Relationships and Compliance

In commercial procurements, customer relationships are generally the single most important factor that drives win probability. The same applies in the public sector. Companies need to buildstrong relationships with government entities, understanding their specific needs, and complying with a myriad of regulations and requirements. A PTW approach that prioritizes price above all else might neglect these aspects, leading to non-compliant bids or strained relationships with public sector clients.

Broadening the Approach to Procurement

To win public sector contracts effectively, companies must adopt a broader approach that integrates PTW within a comprehensive pricing and procurement strategy. This approach should include:

• Value-Based Pricing: Emphasize the unique value and quality your company offers, justifying the price through clear benefits to the end customer.

• Strong Compliance and Risk Management: Ensure that bids comply with all relevant regulations and that risks are effectively managed.

• Customer-Centric Approach: Focus on building relationships and understanding the specific needs of the public sector entity, tailoring the bid accordingly.

• Innovation and Flexibility: Be willing to innovate and adapt to changing project requirements or market conditions, offering solutions that go beyond the price point.

While conducting a price-to-win exercise is an important aspect of responding to public sector procurements, it is not a panacea. A successful procurement strategy requires a holistic approach that incorporates pricing, quality, compliance, relationships, and innovation. By balancing these elements, companies can better position themselves for success. Contact us to learn more!