One of the questions I am often asked when working with clients as an incumbent – “is there a way to improve pWin beyond lowering our price”? The answer is an emphatic yes. When recompeting for opportunities as an incumbent, strategic pricing takes on additional layers of complexity and importance. The incumbent status provides both advantages and challenges that must be carefully navigated through a well-articulated pricing strategy. Here are some actions to be considered:
Leverage Your Incumbent Advantage:
As the incumbent, you have a deep understanding of the project, the customer’s needs, and the specific challenges involved. This insight allows for a more accurate estimation of costs and resources needed for successful project execution. You can leverage this knowledge to create a pricing strategy that reflects efficiency gains or cost savings achieved through experience, which new competitors may not be able to match.
Understand Your Financial Past Performance:
Review the cost structures and financial performance from the incumbent contract. Analyze which areas were more financially successful, which were not, and why. This analysis will inform your pricing strategy, allowing you to adjust prices based on actual experience rather than estimations. Consider the impact of inflation, changes in labor costs, and any improvements in processes or technology that can increase efficiency.
Price to Reflect Value, Not Just Costs:
Incumbents often fall into the trap of relying too heavily on the pricing parameters of the existing contract. In a recompete situation, it’s crucial to also consider the value you bring as an incumbent. This includes factors like proven reliability, existing knowledge of the project, and reduced risk for the client. Price in a way that communicates this added value, not just the cost of service delivery.
Avoid Complacency in Pricing:
There’s a risk of becoming complacent as an incumbent. Avoid assuming that the contract will be renewed simply based on past performance. Competitors may offer aggressive pricing strategies to unseat you. Therefore, it’s important to remain competitive in your pricing, but also to clearly articulate the value and stability your continued service offers.
Conduct a Strategic Cost and Price Analysis:
Conduct a thorough cost and price analysis. This should involve understanding not only your own cost structures but also estimating potential competitors’ pricing strategies. Be aware of the market rates and how your pricing can be positioned to demonstrate the best value for money. It is perfectly acceptable to offer different prices for similar products and/or services on the new opportunity. As I like to remind my clients – “new contract, new day”.
Implement Dynamic Pricing Strategies:
Consider implementing dynamic pricing strategies where appropriate. For instance, if certain aspects of the service have become more efficient or less costly to deliver over time, reflect this in your pricing. Alternatively, if new challenges or additional value-adding services have emerged, your pricing should account for these changes.
Consider Total Cost of Ownership (TCO):
For customers, the total cost of changing suppliers can be significant. Highlight in your pricing proposal how sticking with an incumbent can save costs in terms of reduced transition times, lower risk of service disruption, and the advantage of continuing with a team that already understands the client’s business and needs.
Highlight Your Long-Term Relationship in the Pricing:
Use your pricing strategy as a tool for reinforcing long-term relationships. If appropriate, offer loyalty discounts or more favorable terms for extended contracts. This approach can solidify the customer’s perception of value over just the service period in question.
Create Innovative Pricing Models:
If the market or the nature of the service allows, consider innovative pricing models like performance-based pricing, where part of the payment is tied to achieving specific outcomes or milestones. This can demonstrate confidence in your ability to deliver and align your interests with those of the client.
Mitigate Risk:
As the incumbent, you have the advantage of understanding the risks involved better than anyone else. Use this knowledge to develop a pricing strategy that accounts for risk in a way that is realistic and reassuring for the customer.
Incorporate Prior Feedback:
Finally, use feedback received during the previous contract period to adjust your services and pricing. If certain aspects were highly valued by the customer, consider how you can enhance these in the new proposal. Conversely, address any areas of concern that were raised and explain how these will be managed in the new contract period.
As an incumbent, your pricing strategy for recompete opportunities should still reflect a mix of competitive pricing, value demonstration, and innovative approaches that leverage your in-depth understanding of the customer’s needs and the specifics of the project. At the end of the day, pWin improvement is about balancing the need to remain financially attractive, while also underscoring the unique value and stability you bring as the existing provider. Contact us to learn more!
