B2B MARKETING

GROUP 14

Pricing Strategy for Best Value TenderWen-der Yu; Kwo-Wuu Wang; and Ming-Teh Wang

JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / JUNE 2013

Tanay Salpekar -1402195Tejas Mali -1402199

Vikas Patel -1402207Vinod Chaturvedi -1402210Vinkal Kotangale -1402211

Vinod Maliya -1402213Viresh yadav -1402216

INTRODUCTIONTENDER

Competitive Lower bidding price Do not meet quality requirements Best Value BV

•The value of a BV tender includes tangible, intangible, intrinsic, and extrinsic aspects of evaluation.

•Time, cost, image, aesthetics/appearance, operation and maintenance, managerial safety, and environmental aspects are possible quality-related elements of the BV

•It shifts the competition from simple (price) to heterogeneous (multicriterion) competition

EMPHASIS

•Quality•Efficiency•Effectiveness •Value for money•Performance standards

This paper aims at developing a model to assist BV contractors in pricing their tenders much more competitively and profitably.

Tender refers to the process whereby governments or any organization invite bids for large projects within a finite deadline supported by certain prescribed guidelines.

Contd…Tender Pricing Models Revisited

Essential Heterogeneity of Best Value Tendering

Probabilistic•Friedman, Gates, Carr, Skitmore etc

•The probability of winning a bid as a function of the profit rate (represented as a percentage of the estimated cost).

•The optimum tender price is the one that results in maximum expected profit (MEP)

•Price based Model

Neoclassical Economics•The pricing of a product or service in the market is a result of a compromise between the demander (procurement entity) and the supplier (contractor) in the market.

•The market price is that price at which the supply of an item equals the quantity demanded.

•Market based Model

•The tender pricing models assumed a homogeneity of contractors i.e., the competition among the contractors is simply their offered prices but it doesn’t hold true in the real world.

•Heterogeneity is the different quality (conceived by consumers and measured by a set of predefined selection criteria) of work to be performed by contractors (in a competitive bid) that reaches equilibrium of price in the market

•The heterogeneity of a BV tender is associated with the combination of bid price and the committed quality of contractors participating in the tender

Existing model for pricing of best value tenders• The A + B Method –

- A + B bidding is a method of rewarding a contractor for shortening the construction duration of project as much as possible.

- By providing a cost for each working day, the contract combines the construction cost to perform the work (A) with the social cost of the impact to the public (B) to provide the lowest combined cost to the public.

- In the A + B method, the single quality criterion specified by the client is the construction duration (time), and the quality variation with respect to the price variation is related to the unit time value (UTV) that is measured by the daily road user’s cost (DRUC).

- Analytic and statistic regression models have been developed to estimate the DRUC in the A + B method.• Among the many A + B models, the optimal bid model (OBM) was used by researchers in this paper.• In OBM, formulated quantitative model that combined both the traditional time/cost trade-off model with

the UTV of A + B.• The result is an equation for calculating the total combined bid (TCB) of the contractor, as shown in Eq.

Existing model for pricing of best value tenders

GGA Analysis Model

GGA Analysis Model

Model Formulation

Model Formulation

The measurement of PEQ is similar to that of price elasticity of demand (PED) in economics. PEQ can be defined as the ratio of percentage of changes in the committed quality level as a result of

variation in price. PEQ can be calculated using the following equation:

• where PEQ = measurement of price elasticity of quality;

Mathematical Model

Example : Product supplying Project

Example : Construction project

Discussions

Discussions

Conclusion and Recommendations•Best value (BV) is being increasingly adopted by public and private procurement entities in order to obtain higher-quality products and services

•The pricing strategy of BV tenders has rarely been researched due to the difficulty of measuring the variation in quality with respect to price.

•Two characteristic curves, the procurement entity’s utility-characteristic curve (UCC) and the contractor’s capability-characteristic curve (CCC), are drawn using statistical regression with the acquired tendering data.

Contractors tender

most competitive tender is positioned at the front most point on the procurement entity’s maximum utility curve e while it is tangent to the contractor’s CCC.

the contractor’s most profitable tender is positioned at the point where the gap between the UCC and CCC curves is maximized.

• It is concluded that the proposed BV pricing method provides contractors with an analytic tool to support their decisions in BV tendering more adequately

Conclusion and Recommendations• A price elasticity of quality (PEQ) model is proposed to measure the aforementioned variations.

•The proposed method constructs a quality-price two dimensional graphical analysis, namely, geometric graph analysis (GGA)

•Unlike the traditional lowest bid (LB) method and the innovative A þ B contracting method, the BV pricing method is highly influenced by the perceived value of the procurement entity with respect to the committed quality offered by the contractor.

•The proposed method adopts the existing BV evaluation models, combining them with the contractor’s internal assessment taskforce and a relative comparison method to form a feasible approach to pricing BV tenders

•a benchmarking method is suggested for the bidder to obtain a useful reference of the recommended quality level while applying the proposed model in practical BV tendering

Assumptions:

(1) the quality of a tender is measurable with a multi criterion method;(2) quadratic functions are suitable for HQ and LQ curves; and (3) the procurement entity’s utility-characteristic curves are similar.