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

by | Feb 8, 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 one of his live answers.

What are the most common missing data points when trying to construct an EVE model for a B2B or B2G RFP?

Generally speaking, understanding the value these intangibles is not done well or included often. This is where, when I do EVEs, I’ll ask teams to brainstorm about tangible, physical differentiators as well as intangible differentiators and force them to put them in there. Frankly at the end, it’s really another type of calculation and it’s not very well done. So there is a need for more knowledge around that, but it’s often ignored and that’s a shame because in a lot of times these are differentiators or around relationships established – case studies or longevity. And they always end up non-quantified and as a “nice to have” at the end, which means nothing because trust can’t be calculated.

So I’m pretty big on asking teams to evaluate the value, to quantify the value of intangibles. Sometimes teams struggle to evaluate the risk side of value drivers where you would use, for example, the probability of accidents or disruption/interruption. But you know, it’s like anything else, it’s a muscle that you have to train and develop and you have to have the right data. And it takes a little bit of time.

What is your recommendation for a supplier to the bidder of the RFP to secure value for their portion, especially if the supplier does not have the access to the RFP?

Yeah this is tough, and I’ve done quite a few projects where you join a consortium, and you have the end-user that sets up and established the RFP, but you actually are going to quote to the consortium, and then you’re going to make sure you convince them that your premium is essential in the consortium response. But then the project manager or the finance person in the consortium going to say, “well, if I give you that much premium I’ve got to take it from somewhere else because I have to respond to the RFP and pricing is important.”

So you’re going to have to do a little bit of a gymnastics to go influence here and make sure your brand, your technology is in there at the same time, not upset the consortium itself. Make sure that you do your value models for the consortium, but also for the end user. And then you have to fight internally in the consortium to make sure that they accept some of the premium that you put in there.

So it’s a kind of a value sharing [exercise], because you actually at the end, are going to make the offer to the RFP much better they take your technology. I’ve done multiple sessions where we do value propositions, we understand the consumption needs for the end-user, map the ecosystem and all of that, and then we will have multiple value models for multiple players within the ecosystem.

How can you use technology to optimize value-based pricing with large contracts?

Well, I think it’s essential. If it’s the incumbent and you’re already selling to the account, you’re going to have to have your pricing data, transaction data, so you’re going to use your BI tool. You’re going to use your price transactional software, ERP or not, and that’s going to be the baseline.

If you’re not the incumbent, you’re going to have to obviously come up with some simulators. You could always do that manually in Excel, but I would definitely leverage technology. And when you get into bidding for very large contracts and you have to do a hundred value models, and you have multiple teams working on them (and I’ve done that many times, we’ve got a very complex number of teams working on different components). Frankly, you have to have a software like LeveragePoint to manage all that stuff, because at the end you can aggregate all these value models into one master value model for the system. And that’s essential – they all look alike, they’re all branded the same, they all have the same way to calculate the formula. What you don’t want to have is an error in a formula or a manual calculation error, because someone is using Excel different ways, so be aware of this.

If you have a pretty good idea of who your competitors are, but don’t know the prices that they are quoting, how can you use value to keep from leaving money on the table?

You have to use value. Price to win requires you to know price to compete, which is the pricing behavior of your competitors in the form of all the past bids. And you’ve got to find a way to get them. In B2G, a lot of the prices are published because you can ask the government for information – they have public websites where you can actually go see the price of the winning bid, because it’s the disclosure of public information. It’s much more complicated in B2B. We get into the competitive intelligence field where you have to do pricing research through distributors, or you could hire consultants to do pricing research, but it’s an essential part of value-based pricing and price to win.

You can navigate blind and then expect to put a proposal in front of the customers, not anticipating where the competition is going. Frankly, we’ve lost a few strategic contracts where, we underestimated the behavior of some of the competitors, you know, and remember that you’re winning a very large contract, where you’re taking it away from the competition. They may be very aggressive on the next one.

So you have to understand these games. This is why we run war game session and black hat sessions – putting your teams in simulations wearing the competitor’s hat. How are we going to react? What are we going to do? I’m a certified coach in war gaming and, and its part of value based pricing because you need to understand how competition is going to position themselves.

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