pricing to win: how it's done

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

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Price offered


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

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Preliminary PTW (15%)

PTW (65%) PTW Update (15%)

PTW Update (5%)

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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


PTW Relies on Three Different Analyses

Price to Win Evaluation

Customer Buying

Behavior Analysis

Competitor Top-Down Analysis

Competitor Bottom-Up

Analysis


Analysis #1: Customer Buying Behavior Analysis


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”


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


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….)


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)


Analysis #2: Competitor Top-Down Analysis


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


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


Analysis #3: Customer Buying Behavior Analysis


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


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


Putting It All Together


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


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?


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.


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


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


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


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

pricing to win: how it's done

Business

customer buying

cost baseline

winning price

government

ptw update

lowest price

competitor

customer