Competitive Tendering: 7 Tips for Competing for the Cheese
How to deal with purposeful under-quoting from your competition in the market? This blog provides you with my 7 tips for competitive tendering and competing for the cheese.
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 the 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 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 famine.
In my opinion, 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.
Most of your clients drive costs down and try to get more for paying less.
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?
Here are my 7 Tips for Competitive Tendering and Competing for the Cheese:
#1. Look at your own backyard
Times are 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.
#2. Learn 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 you’re your ex-client and understand where you could have done better. You will also 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.
Read More: Seven Tips for Evaluating Low Cost Offers>>
#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.
#4. Find your own innovation & share it with your clients
I think it is important to invest in innovation 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 also show that you are constantly striving to improve your service and to reduce your costs. It is important to quantify the benefit.
#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 value your customers. It will make it hard for the competition to get a foot in the door.
#6. Be on the front foot and find alternative markets
Often it is hard to stop the invasion from your competitor in your current markets.
It is important to understand 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.
#7. Dare to be different
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.
Have you experienced under-quoting in your market?
If so, please feel free to share your experience with us.
“Who Moved My Cheese” by Dr Spencer Johnston, is a great read about change and how to manage change.
New to tendering or not sure why your tenders are not hitting the mark?
Not sure about how to best negotiate your contract or how to deal with procurement?
You may find this article interesting – Seven Procurement Sins and how to Navigate Murky Waters>>
Or alternatively, 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.
Have a great day!
Post updated in April 2018
Celia Jordaan is a procurement advisor at Ichiban Commercial Solutions, Perth Western Australia. With over 22 years corporate, business and procurement experience, Celia has worked in different countries, locations and cultures in the areas of procurement, supply chain, contract management, law and risk. She has also worked in the area of contractor management and safety.