pricing to win: how it's done
DESCRIPTION
Overview of the Price to Win process.TRANSCRIPT
Copyright 2014 Jon Myerov
Price to Win Process
Jonathan S. Myerov
jonmyerov.com
Copyright 2014 Jon Myerov2
Price to Win Defined Definition: The highest price we can
offer and still win Shaped entirely by external factors: the
customer and the competition The winning price will not always be the
lowest price
Using an effective PTW process early can be the single most determinative factor in securing new business Customer’s key decision makers must like
us and prefer our solution Our pricing must be in line with both
competitors and proposal evaluation scoring/weighting
The best, most successful companies use mature PTW processes
High
High Low
Low
Per
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-pri
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Price offered
Copyright 2014 Jon Myerov3
When to Do PTW PTW is iterated throughout the capture process
Develop initial PTW target before bid/no-bid With a “go” decision, PTW process gets launched in
earnest – driving to the Should Price and the BUA This all should occur in advance of the RFP being issued
SShhaarree ooff TToottaall EEffffoorrtt
Preliminary PTW (15%)
PTW (65%) PTW Update (15%)
PTW Update (5%)
WWhheenn CCoonndduucctteedd
Before bid/no-bid decision
After setting win strategy; before setting cost targets
After RFP drop; during proposal development
During BAFO development
MMaaiinn PPuurrppoossee Justifies bid/no-bid decision
Drives work-share and verified win strategy
Justifies proposal go-ahead decision
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PTW Relies on Three Different Analyses
Price to Win Evaluation
Customer Buying
Behavior Analysis
Competitor Top-Down Analysis
Competitor Bottom-Up
Analysis
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Analysis #1: Customer Buying Behavior Analysis
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Customer Buying Behavior (CBB) Analysis Customer Funding
Customer Historical Award Behavior Recent/Relevant Competitions Recent/Relevant Bids Recent/Relevant Contracts
“The first step in conducting a PTW analysis is to determine how much
money the customer has to spend on your work scope”
Copyright 2014 Jon Myerov7
What Does CBB Produce?
CBB establishes (a) the likely pricing scenario in play and (b) the relative position of the winning price versus
the competition
Customer 1 Customer 2
Relative PriceLowest Priced
Competitor
Winning Price (“LPTA”)
Winning Price against Higher-
Value Competitors
Winning Price against Lower-
Value Competitors
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Customer Available Funding
Question Yes / No Implication for Buy and Budget
Is this a repeat buy?
Did the customer conduct a market study?
Did the customer receive any ROM or unsolicited proposal prices?
Did the customer use a comparable project as the basis of budgeting this one?
Did the customer request pricing in an RFI?
Never bid above the customer’s available funding! (It happens….)
Copyright 2014 Jon Myerov9
Customer Historical Award Behavior Over years, customer buying behavior tends
to be consistent
Few companies conduct any analyses of customer purchasing activity
Look at specific similar sales: who was selected and why? Lowest price or price premium?
What price will the customer consider? (e.g., development, LRIP, expected life cycle)
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Analysis #2: Competitor Top-Down Analysis
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Competitor Top-Down Analysis (TDA) Look at competitor’s past bids
Understand work scope, order size, delivery schedule, level of competition
Use these to establish a cost baseline
Example: Start with competitor list price Interview sales to determine discounting policies
Copyright 2014 Jon Myerov12
Starting with Our Own Cost Baseline Start with our own cost baseline on the bid
Run down customer requirements and generate estimates for each
Be careful! If cost estimates are inaccurate or contain inefficiencies, competitor analysis will also suffer
Cost baseline “Should Price” Should Price = Our cost baseline minus costing and
design inefficiencies, plus profit margin Use Should Price to estimate competitor’s bid price
Adjust our estimates for differences in competitor’s approach Identify key cost drivers against customer requirements Remove features not required or desired by the customer
Identify our own potential trade-offs by interviewing engineers
US
THEM
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Analysis #3: Customer Buying Behavior Analysis
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Competitor Bottom-Up Analysis (BUA) First, determine the strongest competitor
Focus PTW energy on only this competitor, not on many (with rare exceptions)
Important to get the right competitor, in terms of price and technical evaluation
Do competitive and cost analysis until it’s clear who the top one is
Deduce the architecture of the competitor’s likely solution Differences in architecture will drive most cost variations,
not labor and OH Focus also on positioning of the competitor: variety-based,
needs-based, or access-based (see Porter) Create a BOM for all significant items in the competitor’s
technical approach
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Cost Baseline Should Price
Competitor Bid Baseline
Revised Should Price
Hardware
Design
Manufacturing
Sensors/ Equipment
SW Development
SEIT
Program Management
Shipping
G&A
Profit
TOTAL
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Putting It All Together
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PTW Evaluation CBB + TDA + BUA Determination where to
price relative to competition
Identify and justify differences in value between our solution and the competition’s Commercial methodology for estimating value Government methodology for estimating value
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Commercial Methodology for Estimating Value Itemize key product and service discriminators
of ours and competitor’s
Determine the buyer’s sophistication and approach, based on history and intelligence Do they consider discriminating factors in the
evaluation? From the buyer’s POV, what dollar value can be
placed on discriminators? What confidence level can be placed on this
dollarization?
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Example Commercial Value Estimate
Buyer Values
Us Competitor
Value (in $M)
Value (in $M)
Completion Date 21 months $9 24 months --
Quality High $5 Fair --
Schedule Confidence 0 -- +1 month ($3)
Total $14
Greater Value $17
We can bid up to $17M higher than the competitor and still win.
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Government Methodology for Estimating Value Duplicate customer’s proposal evaluation
criteria (and relative weighting)
Score our offering and competitor’s against the criteria Important to conduct review from the customer’s
POV
Implement this evaluation as early in the pursuit as possible
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Proposal RatingsA. Technical 60%
1. Technical Approach 40% Merita. Effective Range 7% Mar Out Out Outstandingb. Cruising Altitude 7% HS Mar HS Highly Satisfactoryc. Speed 7% Mar Out Sat Satisfactoryd. Sensor Capability 7% Mar HS Mar Marginale. Logistics and Readiness 6% Sat HS Unsat Unsatisfactoryf. Ease of Maintenance 6% HS Mar
2. Program and Schedule 20%a. Risk Analysis 5% Sat HSb. Ability to Achieve Schedule 5% HS HS VL Very Lowc. T&E Approach 5% Mar Sat Low Lowd. SW Risk 5% Mar Sat Mod Moderate
B. Past Performance 10% High HighC. Similar Experience 10% VH Very HighD. Cost 20% Unk Unknown
Total Score
Low ModHS Out
68%53%
Merit RatingWeights Competitor Us
Past Performance Risk
Mar HSMar HS
Mar Sat
Example Proposal Scoring
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Setting the Price and Cost Targets The PTW target is the final price after all rounds of the post
proposal submittals or negotiation Develop negotiation strategy after the PTW to set the
proposal price
PTW must be derived early in the process to drive key solution elements
PTW process also should produce actionable recommendations for improving competitive positioning
PTW analysts must, with support from functional organization leaders, set cost targets (i.e., bogies) Cost targets should include burdens, G&A, and fee Cost targets should be tracked against functional estimates
Important to deploy cost targets before conducting estimates to help identify scope challenges and right-size the design
Copyright 2014 Jon Myerov23
Resources Winning the Big Ones, Michael O’Guin and Kim
Kelly
Campaign to Win: The 13 Commandments, Jay Herther
Capture Guide: Winning Strategic Business, Shipley Associates
Powerful Proposals, David G. Pugh and Terry R. Bacon