Dealing with RFP’s
Dealing with RFP’s
I’m sure you have all participated in a Request for Proposal or RFP process at one point in time during your career. And if you think about it. Do you actually know why buyers run RFPs?
The answer to this question is pretty straightforward: it’s because they work. Buyers achieve significant savings from doing RFPs. But how come they work so well for buyers? The answer to that is: power. Let me explain that in a bit more detail.
First, there are 2 perspectives on power: actual power and perceived power. Actual power is the level of power you actually have and perceived power is the level of power people think you have. Negotiations are always about perceived power, not about actual power. The party with the highest perceived power wins the negotiation.
When you are participating in an RFP, you often do not know who your competitors are. This way buyers create a high level of perceived power and they use that to pressure you into making better offers. I’m sure you’ve all heard a phrase like this: “One of your competitors has offered us a better rate. Is there something you can do about your pricing?”
Not something you’d like to hear, because you have put a great amount of effort into making a good proposal to your customer.
Let’s explore how this particular question relates to a real-life example:
Imagine you’re going to a grocery store where they sell apples and bananas. You notice bananas are cheaper than apples so you decide to ask the store owner the following:
Can I buy the apples for the price of the bananas?
I’m sure we can all agree that this is actually quite a weird thing to do, yet this is exactly what happens during RFPs. As an experienced buyer of fruit, you know the cost structure of apples is different from bananas. Bananas originate from typically cheap labour countries, however incur higher logistics costs than apples. So, it’s hard to compare the two from a costing and pricing perspective.
Yet, that’s often exactly what buyers do in RFPs. They will tell you that you’re too expensive, however do you really know who you are competing against? And probably more importantly: do you know if these competitors can provide the same quality and service standards as you can?
In summary, during an RFP process, buyers will always make you believe every competitor is equal to you in terms of quality and service which allows them to use power to reduce your prices.
In reality, you have different levels of quality and service versus your competitors so it’s impossible to compare. Make sure you provide a fair price for your product or service and make sure the buyer knows what you offer.
Alternatively, try finding out what the buyer needs exactly. By going through this process, you’ll have a chance to eliminate at least part of the competition.
Happy negotiations everyone!