Most organisations we work with recognise the importance that pricing has on the development of a competitive proposal. In fact, many of our clients rightly acknowledge price as often being the most influential evaluated criteria in a winning bid. However, we continually find that these same organisations don’t understand what “Price to Win” (PTW) is and don’t know how to develop a PTW strategy.

Richter and Company, a US based pricing analysis specialist, has developed a useful framework for defining and implementing effective PTW strategies. Central to their methodology is an understanding that PTW is not just about modelling a number that will produce a target margin but about putting forward a value position that considers the customer’s requirements and budget. This means successful PTW strategy must represent a trade-off between the capabilities of a bidder’s solution and the price of that solution.

This capability/price trade-off is underpinned by the following concepts:

1. Winning proposals are based on fulfilling customer requirements with value, not selling capabilities with margin.

2. Each of your capabilities has a cost and with increased capabilities comes increased cost.

3. You must understand your customer’s requirements and budget as well as your internal cost drivers.

4. You must consider your organisational strategy and overall bid strategy, positioning your solution based on competitive intelligence.

5. Price positioning should always be based on how bids will be evaluated.

The below graph illustrates how applying the capability/price trade off can help organisations develop a PTW strategy that identifies a price position where win probability is the highest – i.e. in the Win Zone.

It is important for organisations to grasp that effective PTW strategy development relies on competitive intelligence, not just intuition. This means conducting bottom-up price analysis where specific customer requirements are considered in detail along with internal cost drivers. Internal data and external open-source data, including solicitation material, must be analysed and modelled and defensible assumptions must be built.

The PTW development process can be split into the following phases:

1. Needs based analysis. Includes:

  • Identification of customer’s explicit (compliance) and implicit (value) requirements.
  • Analysis of customer spending patterns.
  • Understanding of the evaluation process and evaluators biases and hot buttons.

2. Research. Includes:

  • Identification of competitors’ solutions, strategies and aggressiveness.
  • Identification of internal cost drivers and cost assumptions.
  • Development and modelling of Cost to Compete (CTC)

3. Solicitation based analysis. Includes:

  • Applying intelligence from phase 1 and 2 to identify how a bid will be evaluated.
  • Identification of customers cost point and competitor’s price point.
  • Development and modelling of Price to Compete (PTC).

4. Delivery. Includes:

  • Modelling of multi-level PTW strategies.
  • Refinement of solution and PTW position.
  • Selection of final PTW strategy.

The early attention of an organisation to the implementation of a PTW strategy development process provides a range of benefits. It enables efficient solution development, with the identification of multi-level PTW strategies for consideration and refinement. It facilitates the building of robust support models backed by sound assumptions. Finally, and perhaps most importantly, it allows for the earliest possible achievement of management buy-in.

While the benefit of PTW modelling is fairly simple to understand, it requires technical capability, commitment and effort to implement. This is where we see a lot of organisation fail because they try to use a member or members of their internal team who don’t have the right level of technical acumen and/or are not fully relieved of their day to day duties. In our experience this generally compromises the development of an effective PTW strategy, which is often the difference between a winning and losing bid. We always advise that suitably qualified and dedicated resources, whether they be internal or external, be commissioned to deliver an effective PTW strategy.