Welcome to the third session in our Developing Strategy module in our APMP Foundation Training webinars.In the sessions so far we have looked at proposal strategy and teaming.In this session we’ll look at how our understanding of the customer and competition will inform our strategy on price.
In this session we’re going to introduce the concepts of Value,What this means for Budgets, How we set our Price and Determining CostsAnd then we’ll look at all of these again when we consider that we’re doing this in competition.We will cover the ideas we need for the examination syllabus and also cover some further ideas of best practice.
We used this formula earlier in developing an Initial Value PropositionIt’s important that when we’re quantifying the value delivered we work as far as possible with the Prospect’s underlying assumptions and data because that is what will inform their internal business case.
In preparing a business case there are many sources of value but the Financial Case will be driven mainly by the TANGIBLE BENEFITSIncreased ReturnsReduced CostsMake sure that you understand the Propspect’s assumptions about these and where possible help them develop an investment case for the project.
This goes right back to basic sales questions: What would be your vision of the solution What would that be worth to you? What would be involved in getting there? How certain is the outcome? What are the obstacles and risks? What would you expect to pay for that?This will set their view of BUDGET (what they expect to pay suppliers)
If you don’t know the value and you don’t know the budgetYou’ll have big trouble setting the winning priceHere are the basics:
Key is return on investment – RoI, margin, payback, whatever criteria you useOptions – offer min compliant bid, add options, no bells and whistlesEach party has a business case. Both the customer and the supplier have them. They have to align.Business Cases should include:ObjectivesBenefitsReturnonInvestmentOptionsCashFlow and Finance CostsRiskAnalysisAssumptions
Would you rather buy a software service solution costing £10,000 or one costing £35,000. Easy question all things being equal.But what if the £35,000 package includes free training, maintenance, and upgrades. And what if it works so much more efficiently, you can reduce your customer support staff by one full-time equivalent position? Now which one is more tempting? It's the difference between price and value. And sometimes we forget to show our customers what that difference is. We need to communicate a value proposition that equates to an advantage for our solution. The basic value proposition can be expressed like this: (Values - Costs) > (Valuea - Costa) where the value of our solution (Values) minus its cost is greater than the value, minus cost, of any alternative.Customers are often willing to spend a little more if they see they are getting a lot more. But if there's no compelling difference among vendors, if there's no compelling value proposition, they'll buy whatever is cheapest. That's why it's so important to offer a value proposition. And to do it in a way that gets noticed
Pause the presentation to read the answers above.If you selected C, you got the right answer
Learning objectives:In this unit we are going toUnderstand the difference between value and priceExamine the development of sound business caseLearn how to work with others to set a cost targetAnalyse competitors and customer to establish awinning price target Proposal Guide 182
Building up to the winning priceWhat does the prospect Value?What is the prospect’s Budget?What should be the Target Price?What are our solution Costs?What will be our competitors’ price?What’s the Winning Price? Proposal Guide 182
Value and Price Price to Customer Value to Customer Capability
Value and Price Value to Customer Price to Customer Capability
What is your Value Proposition?– Starting……………………………...…………………… [implementation date]– As a result of <your company>’s… [service or product]– Client will be able to……...................... [do what specifically]– Resulting in………………………………………….. [quantified business improvement]– With payback within………………………… [timeframe]– We will document our delivered value by……………………………… [result tracking strategy]
Different strokes for different folksThe Value Proposition varies depending upon the buyer, for example: CFO • Cost reduction, CAPEX savings, efficiencies CEO • Shareholder value, market value CTO / CMO • Quality, capability, competitive position Value must be QUANTIFIED
Value drives the prospect’s business case and purchase budget Their internal cost assumptions Their Their view of perceived risk value Their Their vendor Vision & benefits Business price Case assumptions
Establishing a Target Price achieve your take into account A Target be within the Customer’s organisation’s your acceptable competitor’s Price should budget margins pricesEstablish the target price early Use both, until Methods: Top down Bottom up they converge
Your target solution should support the Sales Strategy Non Compliant Minimal ? Compliance? Additional Value? What is your Strategy?
Setting Cost Targets Target Cost may be less than, greater than or equal to Target Price depending on the business case for the opportunity Include the total cost for a technically compliant solution, including: • Resources • People / facilities / sub contracts • Deliverables • Risks • Contingency • Bidding costs (sometimes part of overheads) • Cost of finance (if appropriate)
Use top down and bottom up together Top Down • Customer value • Customer budget • Competitor price Bottom Up • Cost roll up • Risks • Required Margins
The bidder and prospect business cases must both stack up Delivery Risks & Costs Assumptions Achievable ROI & Revenue MarginsObjectives Our Bid Budget and Business and Sales Benefits Costs Case
Competitor price positioning“You will achieve more value with our solution than with the next best alternative”Value Price Value PriceWinning Solution Next best alternative
Quick Quiz Question: Which is most likely to be the winner?a. Value equals priceb. Price is greater than valuec. Value is greater than priced. The value proposition for each type of buyer is the same Please make your selection in the Polling pane
How did you do?When perceived value equals price you may end up competing purely onprice. If the competition has exactly the same features and benefits set asyours and a lower price then the prospect may find it difficult to justifychoosing your offer.If your price is greater than the value being offered then unless the prospecthas other choices they may not take your offer. Expect to negotiate topreserve your price.Where the value is greater than the price then the prospect is more likely tolook favourably on your offer. You should still expect to negotiate.If the value proposition for each type of buyer is the same, then this suggeststhat all are buying for the same reason and have identical motivations. Can thisbe true?
In this session we have:Analysed competitors and customer to establish a winningprice targetWorked with others to set cost targetExamined the development of sound business caseUnderstood the difference between value and price Proposal Guide 182
Preparing for the e-torial• Consider how and when pricing for proposals is done in your organisation?• What kind of pricing challenges do you face?• What would ManCo perceive as value?• What would ManCo perceive as risk?• Prepare your answers and put into the class space. Note: You are not expected to share your pricing information at the eTorial.