Competitive Tendering: 7 Tips for Competing for the Cheese
How do manage your business when your competitors purposely underquote in competitive tendering to gain market share?
Competitive Tendering is similar to Competing for the Cheese
Do you remember the tale of the two little people and the two mice that lived in the maze and one day are faced with change – someone moved their cheese?
It is a simple story but it has a number of huge lessons to learn about change. It is interesting to see behaviours and how they change in tough times.
What do you do when your competition willingly and knowingly undercuts and under-quotes to gain market share as part of a competitive tendering process?
You never really find out in “Who Moved My Cheese” who moves the cheese.
In my opinion, undercutting the market is the same as moving the cheese.
It is the same as your competitor is no longer sharing the cheese with others.
In response, you can either be smart mice and find more cheese or stay put in one spot and face business famine.
Remember – mergers, acquisitions and monopolies are easy to manage in terms of trade and anti-competitive legislation. However where a competitor continues to willingly underquotes in tenders in order to gain a market monopoly is not so easy to spot and therefore most often gets away with anti-competitive behaviour.
As part of your own strategy on how to combat this type of behaviour:
- you need to understand why this is happening,
- work out what makes up the cheese; and
- why your competitor can move it.
Also remember: Most of your clients drive costs down and try to get more for paying less.
This will never change and therefore you really need to look at how you can become smarter, more effective and productive in your business.
In times where all have to look at reducing costs, it is sometimes very easy to play the money card, especially if you have a stronger balance sheet than your competitors. As long as there is the lure of the same service levels at a lower price, it makes it difficult to say no to an offer that undercuts the market.
Often it is short-term gain and probably long term pain.
The long-term risk is either a number of variations for every small change in scope or a claim for hardship a few years into the contract.
What to do when your competition’s business strategy is not to share the cheese but to move it to a room where no one can get to it?
How do you go about finding more cheese as part of your competitive tendering approach?
#1. Look at your own backyard
Times may be tough and therefore you will need to make sure that you have found all of the inefficiencies in your own business to make sure that your own costs can be reduced and you can maintain your margins.
After all, we are all in the business of making money when in business.
Therefore understanding your costs, your opportunities to be efficient, will assist. Remove the “waste” such as rework from your own business in order to reduce your cost of sale as you never want to cut into your margin.
#2. Learn and apply the lessons
If you are in the unfortunate position to have lost one of your contracts to the competition, it is critical that you get as much knowledge and information on why this has happened. Have an open and detailed conversation with your ex-client and understand where you could have done better.
You will furthermore learn more about your competition’s strategy and tactics.
Remember, if you lost one contract, the competition has the perfect ammunition to tell your other customers that you are not efficient and your prices are too high.
Also, make sure you do not burn bridges with any customer where you lost the contract to the competition.
History often shows that when the customer is in the pickle, they will come back to you for the rescue.
#3. Negotiate the best possible contract terms and conditions
Do watch out for termination of convenience clauses. Generally they are in favour of the client and can terminate a contract with no cause and very short termination periods.
It is important to bring in a reasonable notice period and also clarify what your rights are upon termination either through demobilisation/final claims or early termination fees. Negotiating a fee for early termination is complicated but this is necessary to get the best position where you have invested capital to provide the service.
It is one of the areas where negotiation of your rights are critical as payment of an early termination fee would often delay or make the decision to move to the competition more difficult.
Often the client’s first position will be to delay payment, extend the passing of risk but want title to pass upon delivery. Intellectual property is another stickler clause.
Make sure you negotiate the best outcome and protect your business from a negative risk position.
#4. Find your own innovation and share it with your clients
It is important to invest in innovation, automation and ways to be smarter in doing business.
You will gain trust from your customer when you share the benefit of the improvement with your customer.
It will furthermore show that you are constantly striving to improve your service and to reduce your costs.
But it is important to quantify the benefit as you want to make sure that this is recognised as part of your proactive contract management and performance delivery.
#5. Understand your clients’ pain points before they do and do something about it
If you know your clients’ business well, you will be able to identify areas where they can bring improvement and remove pain points.
Identifying issues and finding solutions for your customers will show that you bring value for money to your customers.
It will make it hard for the competition to get a foot in the door and steal the cheese.
#6. Be on the front foot and find alternative markets
Often it is hard to stop the invasion by your competitor in your current markets.
It is important to have a plan B.
Look at different market sectors and how you can branch into these and be the first to do so.
Find a different cheese. Plan ahead and stay ahead.
Remember the smart mice moved before all the cheese were eaten.
#7. Dare to be different and find your unique point of difference
Often the alternative is to take on work at a price that is below your cost price. It is not a sustainable manner of doing business.
Sometimes it is best to say no and to walk away.
However, the recommendation is to always make sure that you do it with respect and do not burn bridges. Customers will come back when the competition burns out.
It is not easy to find a different cheese and to leave the comfort of what one knows. In the end, it is the only way to go.
The little mice always kept their shoes close and handy; in order to be able to be on the move when they needed to be.
Otherwise, it may take famine to make you move or it may be too late to move.
So, dare to be different and focus on your unique point of difference!
Have you experienced under-quoting in your market?
If so, please feel free to share your experience with us. We will see what we can do to help.
“Who Moved My Cheese” by Dr Spencer Johnston, is a great read about change and how to manage change.
Not sure about how to best negotiate your contract or how to deal with procurement?
We can help you navigate the murky waters – we have been working on both sides of the “procurement fence” for a long time now. Thus we can and do can assist with contract negotiation and preparing for difficult conversations with your client’s procurement team.