Co-Opetition - Adam M. Brandenburger [43]
There seems to be a natural impulse to offer competition for free. After all, that’s what business people are supposed to do, isn’t it? You want a bid? I’ll give you a bid. Contractors, architects, exterminators—they all give bids. So, in effect, did Holland Sweetener and Norfolk Southern. But BellSouth didn’t, at least not for free.
The right question to ask is: how important is it to the customer that you bid? If your bidding is important, then you should get compensated for playing the game. If it’s not so important, then you’re unlikely to get the business and even less likely to make money. You might want to reconsider bidding at all.
That’s nice in theory, but does it work in practice? Everyone would like to be BellSouth and get paid $76.5 million for playing a losing hand. But that’s pretty rare. Most customers would simply laugh at you—more likely swear at you—if you tried to get them to pay you in cash for making a bid.
Competition is valuable.
Don’t give it away.
Get paid to play.
It’s abrasive to ask to be paid in cash; it’s often not that smart, either. Fortunately, there are many other ways of getting paid to play. You can ask for contributions toward bid-preparation expenses. You can ask for help with up-front capital costs, such as the costs involved in building a plant. You can ask for a guaranteed sales contract. Also valuable is a last-look provision: you get the business so long as you match the best price in the market.
In return for bidding, you can ask for better access to information about the business. That gives you a much better chance of winning the account. It turns you from being an outsider to being an insider. It’s the first step toward forming a relationship with the customer.
Ask to deal with a different person. Make the bidding an opportunity to meet senior management. Ask to meet someone who will appreciate what you bring to the table and not just focus on getting the lowest price. Or in return for bidding on one piece of the business, get access to the customer’s other pieces.
Finally, you might try turning the tables. Instead of quoting the customer a price, ask the customer to quote you a price at which he would give you his business. The customer gives you a signed contract complete with price, and you decide whether to sign. If you do, the customer has to switch to you. This way, you can ensure that the customer isn’t playing games. Car dealers know this technique quite well. Instead of quoting you a price, they often ask you how much you’d pay. After hearing your price, they say: “I’d like to sell you the car at that price, but I need the manager’s approval.” But first, they need you to sign a contract at the price you’ve named. Dealers know, then, that if they agree to your price, they will have a sale and not just another round of negotiation.
Seven Ways to Get Paid to Play
1. Ask for contributions toward bidding expenses, up-front capital costs, and other costs of entering the game.
2. Ask for a guaranteed sales contract.
3. Ask for a last-look provision.
4. Ask for better access to information.
5. Ask to deal with someone who will appreciate what you bring to the table.
6. Ask to bid on other pieces of business, in addition to the current contract.
7. Ask the customer to quote a price at which he would give you his business.
Cash is okay, too.
Of course, even with this arsenal of strategies, you might still fail to get paid, in which case you may decide not to play. That outcome isn’t as bad as you might think. The cost-benefit calculation that suggested you might want to become a player in the first place was a little off. It’s simply not true that making a bid has no downside.
Eight Hidden Costs of Bidding
There are hidden costs associated with making a competitive bid.
1. There are better uses of your time. Making a bid typically takes a lot more time and effort than simply reading a number off a price sheet.