Value-Based Pricing for Large Contracts: Capturing Customer Value Through the RFP Process Q&A Part 2

by | Mar 2, 2021 | Pricing

For our January Webinar, Stephan Liozu, Chief Value Officer at Thales, explored value-based pricing disciplines for large contracts used by leading B2B organizations to navigate the RFP process for B2B and B2G customers. At the end of the session, he answered questions from the audience. In this blog, we share part two of his live answers.

Are there any best practices unique to B2G as opposed to B2B?

Oh yeah. And it’s a whole chapter in my book! Where between B2B and B2G, we use the same methodology – the six steps and segmentation are not the same, because again you are selling to the Department of Defense. There is only one, there’s not 500 of them to segment, right? So you go deeper into the segmentation. Earlier, we talked about the finding the competitor’s price – it’s going to be different in B2G versus B2B. How you dollarize and quantify value is different.

I have been in many situations where it was very hard to dollarize value. Imagine you have a pilot in the fighter jet and they were using laser-guided missiles, and you can gain five seconds or two seconds reaction for a pilot. How do you monetize? And dollarize this then? So it’s easy to get stuck because you have to then create your own testing methodology, and it’s not something that’s done in the defense world, though it’s more often done in the B2B world.

So there’s a lot of differences and nuances. The philosophy remains the same, but it requires a deep understanding of the government because you can’t quantify value the same way.

Where does the term “left shift” come from, and what does it mean?

If you do a search on Google you will find that it comes from the IT world, where you’re understanding customer needs earlier [in the development process]. IT is always ahead of the game as far as outsourcing, TCO, and left shifting. So we embraced it at Thales and called it “left shift” because you have to start [early on] up-front in the process to understand the customer requirements. It doesn’t work all the time, but at least there is the obligation of making the effort to shape, influence, and understand. With price buyers, sometimes it’s impossible. Sometimes you need to submit a confidential price in an envelope that’s sealed and your supplier’s name is not known. You can’t win all the time. Sometimes you have a best value contract. Sometimes it’s about price, price, price, price. So you left shift when you can.

In large global RFPs which demand unique prices across markets (eg. med device), how do you support using value propositions?

It depends who is in front of you, who you’re bidding for. If you are a global player and you have a global customer, then you are going to have to look at the footprint of the customer and the stakeholders, and you’re going to have to do multiple value propositions. And that is a really tricky situation where you’re going to have local culture, local health systems regulation, you’re going to have pricing preferences, local competition. So all that stuff is going to make your value modeling very dynamic.

But it is a matter of understanding the account, what they want to buy, how much they want to buy, and what the locations are. And then looking at, what are the boundaries of the contract and what is the scope, and then going in action mode to do your best – to simulate the best you can. It is tricky when you get into global suppliers selling to global customers in the very competitive and separate med tech field with lots of regulations. This is as complex as it can be.

Documenting value as an incumbent is vital, but often difficult. How does Thales do it?

So use some of these techniques. If you can get the customer on board? Even better. If you cannot, you have to do it the best you can. For me, I don’t take no for an answer. We just have to document it the best we can with the best accuracy that we can. And then we have to constantly interact with the customer too. So don’t do this: sign the contract, then disappear for three years, and then go to renew it and you show the documentation of value. No, you do that every month. This is a part of ongoing Value Selling. You do that through regular touchpoints, you have regular value meetings.

You have to kind of educate them to receive, to be on the receiving end of value documentation. If not, it’s going to come out of left field and it’s not going to be very credible. The customer may not want to document and share with you how much value they realized, but at least you’re having discussions.

And don’t forget that a customer is multiple stakeholders. So you have to engage with all of them. And when you talk about subscriptions, when you talk about the global contracts, and then you think immediately in terms of retention and part of retention is value documentation and value realization.

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