Co-Opetition - Adam M. Brandenburger [45]
The view that you win if competitors lose is simplistic and potentially dangerous. If you lower your rival’s profits, he then has less to lose and every reason to become more aggressive. He can go after your existing accounts with abandon. In contrast, the more money your rival is making, the more he has to lose from getting into a price war. Until your rivals live in glass houses, expect them to throw stones. Thus, it’s in your interest to help them build a glass house—not a mansion, a house.
Eight Hidden Costs of Bidding
1. You’re unlikely to succeed—there are better uses of your time.
2. When you win the business, the price is often so low you lose money.
3. The incumbent can retaliate—you end up trading high-margin for low-margin customers.
4. Win or lose, you help establish a lower price—your existing customers will then want a better deal.
5. You set a bad precedent—new customers will use the low price as a benchmark.
6. Competitors will also use the low price you helped create as a benchmark.
7. It doesn’t help to give your customers’ competitors a better cost position.
8. Don’t destroy your competitors’ glass houses—if they’re a little vulnerable, they’ll be less likely to go after your accounts.
It’s very tempting to just go ahead and bid when you’re asked to. Now you have some reasons to look before you leap, or not leap at all. And if your boss asks why you weren’t willing to play the game for free, you can explain about the Eight Hidden Costs of Bidding.
The flip side of entering a game is having someone else enter your game. What do you do then?
Calling All Players The phone rings. Once again, it’s a customer who calls to say that he’s unhappy with his current supplier. Only this time, that means you: you’re his current supplier. You inquire why he’s upset, and he tells you that someone else has come in and offered to supply the same service for 50 percent less. He asks: “What are you going to do?”
Good question. You take a deep breath. Next you have to ask yourself whether the customer is really telling the truth.
It’s not unheard-of for people to make up bids in order to get incumbent suppliers to come up with better prices. It’s a cheap trick. It’s neither ethical nor, in the long run, effective. It puts the supplier in a lose-lose position. Matching a fictitious bid is giving away money, but calling the bluff is also a loser. Once the customer has been exposed as a liar, it’s virtually impossible for supplier and customer to go on doing business together—the cat has been let out of the bag. (More on this in the Tactics chapter.) What about calling up competitors to check whether the bid is real? In the United States, at least, that’s illegal.
Okay, you have to assume that the customer is telling the truth. Now what? Go ahead and match the lower bid? That may not be necessary. First, you should remind the customer of your track record, assuming, of course, that it’s a good one. Emphasize that in switching suppliers, he’d be giving up a proven relationship for a leap into the dark. Lower price or not, he could well end up regretting the move. If the customer values the relationship, you should be able to keep the business without meeting the new price. You’ll probably need to make some price concession, but you won’t need to go the whole way.
If this doesn’t work, that doesn’t mean you should now go ahead and match price. It might be better to let the customer go. Matching price can be very expensive: your other customers may get wind of the offer and demand similar discounts. You may even be contractually obligated to give them the same lower price.
As for letting the customer go, that may be a hard bullet to bite, but you