In this episode of Pricing College - Aidan and Joanna discuss why you should seek to avoid tenders whenever possible.
Your key account team and sales team should focus on preventing existing clients on going to tender - and work with potential clients to discuss value in a more productive manner than tenders.
In the last episode, it's been pointed out to me that I sound very negative. So in this episode that regarding tenders and why I dislike them will say. And so in this episode is like, you dislike something, what are you going to do about it? And in this instance, I think our messages show how to avoid tenders whenever possible.
I think avoiding tenders is probably the conclusion to all of this. But I know what you're thinking, it sounds a little bit too difficult. What are you supposed to do when there's a process already set up and we were sort of made to do them? Well, again I think it comes down to understanding the value that you offer and segmentation. Sometimes you need to know who to sell to and who to walk away from.
In many companies, I think we have this concept that tenders are inevitable. They're part of the job, they want departments to do specifically in B2B companies. I know I previously worked in a company where we were looking after major national chains and tendering was a very large part of the job. To some extent, I would think we should almost view ourselves as if it goes to tender that is a failure. The senior management gets excited about tenders and doing tenders. My view will be, we should get excited about preventing tenders or not going to tender. We should almost describe ourselves as, which will have metrics. Which tenders are we avoiding this year? Which customers have we kept by not going to attend or by not going to market through ongoing value and delivery? This was a different way of looking at it, but it will over time in my view lead to keeping customers longer and higher profits.
I think you're right, Aidan. To a large extent, the tender process is a habit for businesses. It's a routine that teams go through and it's an expectation that management has. It's like we don't go through it, that’s going to disrupt the relationships that we have with our customers that we've built up over the years. But therein lies the question, you built up a relationship but yet you still have to go to tender with that company? Surely at that point, you have to question the strength of that relationship. Would you call a relationship with a customer a partnership when they routinely ask you to go to tender, but you have been known to deliver on time? They keep coming back to you but yet demanding a cheaper price. I wouldn't call that partnership. And I think at that point, you've got to reevaluate that relationship and get real with where you're positioning yourself with your customers. Then start asking the question, Am I a vendor? Am I a supplier? Or a partner here? And if I want to be treated as a partner, would I be going through this tender process? The answer is no.
I think if you look at the time and effort invested. When I say invested I mean wasted on both sides on the company selling the product and service and on the company buying the product or service. The other thing I will say, if you've got a long term procurement deal with a supplier, it's almost a bit like a long term relationship or marriage. So you're working towards common goals, you're part of the supply chain. If you view it as what you've done, you've outsourced your supply chain as a company. Then the company who won the tender goes and supplies that service to you to help your company deliver what they do to your customers and the supply chain. If you think about it, every three years or every four years we're going to go to tender, that's our company policy. What that theory does is it means for six months or a year leading into the tender. The relationship will fragment, the amount of productivity delivered will decrease. And specifically, when the supplier knows that you’re either talking to competitors and that your entire proposal is to downgrade to water down your offer. To hammer down your pricing. There's going to be damage in that scenario. So that the first six months leading into the tender, and even if you keep the supplier on. Six months after then there's a kind of reignited relationship again trying to get things back to normal. So what you're doing is you're undermining the relationship for a certain period of time.
Sometimes when the customer comes to you or a business with a tender, what they're probably saying is that the relationship has broken down. They're not telling you specifically, directly, verbally to your face but they're giving it to you in that document. That's the sign that something's wrong. Because they wouldn't have come to you in that way if you were a partner. So what as a business should you be thinking about a tender when that's handed to you when you think that your business customer is a partner. You should be thinking, what have I done wrong? Have we delivered on time? Is our supply chain that efficient? Are there any points in the last two years that we've been working with that customer that we've failed them in some ways, they've been some product failure? Has anything happened and do they like the trading terms? If you found out that's true, then you can address it. But I think there's a lot of instances where companies don't ask those questions and don't have the detail on it. So things just get sort of ignored and daily operations continue. Your customers put up with maybe services they didn't want in a way. And then they don't want to tell you either what the problem is, so then they politely give you a tender document at the end of the contract, just to show you that things aren't right. So sometimes that's another way of looking at it. The point of all of this is you've got to start looking at your business in terms of data, understanding where you deliver. Where you possibly are underperforming? And then address it. You raise the question with your customers. So you have that feedback regularly and that conversation with them so where you stand.
I think that is fundamental account management if you have a dedicated account manager on that contract. Their job is to deliver increasing value to keep the customer happy. To keep your business profitable, to keep prices up and revenue and profitability for your business up. But at the same time is to keep that relationship growing, hopefully, expanding customers making with you. And if there are bumps along the road, see them as far as possible and prevent them. It’s proactive, not reactive like tendering is reactive. If you're already been working with a company for 5 to 10 years if a tender comes up. Why could you not have prevented that? What could you have done in advance? We'll be completely honest, of course in some companies there are procurement teams who just love a tender. There's nothing you can do about it. And you can try to explain and use your relationships in that other company, explaining the value, but sometimes it just happens. But there's a certain percentage, pick off the low hanging fruit, the more you can prevent the better. If you can prevent more, you know what your customer wants, you can embed yourself more in their organisation. They become dependent on you more and more, and hopefully, over time they’ll see you as trusted. If the customer wants something else that they're not getting from a supplier. Be open and let them talk about it, discuss it. Theoretically, if they ask for lower prices and you say no. The last thing you should do then is a tender process given lower prices. Why did you not get them in advance if that was possible or that was on the table? So if it gets to Tender, what you've done is you've weakened your negotiation and bargaining position. And undermined the relationship so that over time they won't even see you as a strong partner. Yeah, it's a negative all around.
I suppose, and that's what position on this is like, why bother going to tender if you haven't done the work in advance? At that point, you're both going to lose out. You're going to commoditise your service. And they're going to get something suboptimal that they don't want and expecting possibly it's going to be something else. So have the conversations well in advance. I mean, always have the conversation so you don't even have to get to Tender. If you're at the point of a tender, then have meaningful conversations, not like just two weeks before the tenders are due. These conversations occur at least nine months before. But what we're trying to say is, if you keep having these real conversations about the value that you're offering and the problems that they have. Then you're very likely not to go to tender, it won't go there. There will be exceptions as Aidan pointed out, it might be just procedure. But very often, they won't want to go through the cost of the tendering process either because it's costly to them. They're not getting what they want on time. The total cost of a tender process is quite substantial, so it's a cost that they wanted to avoid. And they would avoid it if they knew that they were getting what they wanted from you.
I think that's all I gotta add on the topic. Let's put it like this, going to tender is a crisis. Let's avoid crises by preventing them, putting in place preventative measures, and things should not come to that. Things should come to discussion, communication, if there's problems or something's not going where people want to go, that's the way it should be. If your competitor supplier has come out with innovation or a new product and your customer has expressed interest in it. Go back to your own company and see what you can do or why your product or service is slightly better, or can you provide a similar service also. So be proactive, think about the bigger picture and fingers crossed if you do that you should avoid the cost. Always remember that running a tender from a supplier or a customer basis, costs time and effort. And time and effort is something that nearly any sensible company wants to avoid because it's unproductive.
Apart from just account management, I think, account management needs to work with the pricing team on this one. And the pricing team needs to have all the facts so they can give account management the right information and tactics to go back and inform the customer about various things. Especially in terms of trading agreements and things like that. But key inputs that all businesses should know, was like, what prices are other competitors charging? I know that can be difficult in a B2B environment. But roughly people do know, they do talk, and often account managers, circle around the same businesses as well. So there's an understanding of, what the average price is? What are the key value drivers that your customers keep mentioning? Put that in the CRM. So, if an account manager leaves, the new one will know key things about that account. And then can ask questions probe deeper into it, and key metrics. What are your customers trying to achieve financially? What cost reductions do they want? Is that possible? How do they want to buy from you? Do they want to buy from you using the maximum annual or two-year long term contract? Did they just want to try? Or, do they want a non-commitment sort of contract month by month? Is that possible? Why is that not possible? All these sorts of things lead to very meaningful discussions which you can track and monitor using data and then translate that data into conversations. Okay, Thanks a lot.