Attendees are usually surprised when my class starts off with all the reasons for not doing proposals.
Personally, I hate RFPs, but responding to them is an essential part of doing business for many professional
service knowledge firms. If you've got to do proposals, you might as well do them effectively, right?
About RFPs, Ron Baker posted at VeraSage the other day saying:
RFPs have become more commonplace as competitive bidding has replaced negotiation for price buyers. It is as if dysfunctional buying practices have arisen to counter dysfunctional selling practices.
Honestly, I didn't know Baker and I agreed quite so much on the topic of proposals. His post "RFPs and the Dreaded Winner's Curse" is a great read. He encapsulates my own philosophy really well (I swear we didn't even talk about this!):
Another strategy with RFPs is: No surprises. Your potential customer should know everything in your proposal before you submit it. Gaining an understanding of your customer’s expectations, business model—how they make money—and how your company can add value is imperative to increase your odds of a successful proposal, one that will not suffer from the winner’s curse.
Search for the differences that will ultimately be weighed in selecting a new supplier. If customers are worth bidding on, they are worth spending some resources on in order to improve your chances.
Baker adds a list of eight hidden costs of bidding, with comments, from the book Co-opetition, by Adam Brandenburger and Barry Nalebuff. The first two really hit home. Some of the others don't trouble me so much...
- There are better uses of your time. Keeping current customers happy may be a better strategic advantage as opposed to chasing after other company’s customers. Attracting a new customer can cost three to six times more than holding on to an existing one, and the existing one is most likely less price sensitive.
- When you win the business, you lose money. A customer won on price alone is signaling they have no loyalty, and will leave you once they find a lower price. Do not fall into the trap of thinking you can start with a low price and raise it later; the evidence is overwhelming this will not work, as once you set a low price you are rewarding the customer for beating you up in price.
- The incumbent can retaliate.
- Your existing customers will want a better deal.
- New customers will use the low price as a benchmark.
- Competitors will also use the low price as a benchmark.
- It does not help to give your customer’s competitors a better cost position.
- Do not destroy your competitor’s glass houses.
If you want to save a LOT of time and grief, get some good processes in place INCLUDING a process to decide if you even want to propose at all. If you're a firm that doesn't want to recreate the wheel, you should check out my class! ;-)