Personal computers are a commodity now, and the concept of uncertainty is inherent in most PC-related deal negotiations. Uncertainty in the world of sales is an uncomfortable idea: it means the sales team does not know whether they can win the business. Building on and tapping into their uncertainty is the key to creating deal leverage.
It’s no secret that in PC marketplace, using an RFP is one of the most effective ways to get the best price. But if uncertainty is inherent, why does the RFP provide such high value? The answer: most folks don’t do it right. You must commit to the process to fully exploit uncertainty.
A Recent Example
Client ABC, who ran a single-vendor shop, was recently tasked with upgrading the enterprise’s PCs. In Q1 2017, ABC was offered a laptop model at $1000/unit. ABC decided to bid out similar models to three PC competitors in an RFP. After committing to the RFP process, ABC was offered $840/unit, for a newer model with better features from the incumbent. ABC achieved savings of $256K compared to the original offer.
A closer examination of this campaign reveals five strategic steps to creating this price movement.
5 Keys to Success
Commit to the process
Commoditize the decision
Ignore the list price "head fake"
Use the budget in the message
Leverage the timeline
Commit to the Process
Lots of deals break down due to lack of commitment. For example, the goal of an RFP is to maximize uncertainty, but we often see clients decide after only one round. That may be because the incumbent provided the lowest offer, or because a competitor wants to win the business right off the bat. By selling out to the most aggressive offer, the buyer forfeits many of the benefits of competition. This is a lost opportunity to make the vendors compete, and do extra work to win your business.
Commoditize the Decision
To help you make the best decision, you must ensure that all vendors are bidding on equivalent products. It’s imperative that the technical team confirms that each vendor’s product fulfills the technical requirements equally. By commoditizing the decision, you level the playing field and set the stage for a price battle.
Ignoring the List Price "Head-Fake"
Buyers must remain laser-focused on unit offer price, not list price.
For example, in the incumbent’s original Q1 offer (pre-RFP) to client ABC, the laptop was available for $1000 per unit, though the list price for this product was $1940. In the Q4 RFP, ABC was offered a newer model for $840, which had a list price of $2170. The client was offered a newer model for significantly less money because competition was introduced into the process. (Competition = uncertainty.) The RFP revealed that (a) Dell really wanted to win the business, and (b) the list prices were all but meaningless.
Using your Budget
Clients often view budget as a limitation. We see budget as a weapon. Centering the conversation around a specific budgetary target helps you achieve competitive pricing. Conversely, centering the conversation around discount percentages turns the negotiation into a tug-of-war between you and the vendor representative. When negotiating with budget numbers, you bring back the business case for the purchase.
Leverage your Timeline
When time is short, bad deals get made. ABC used a long runway to their advantage: the deal-maker started the deal a year early and told the vendors there was “no rush” on the PC upgrade. The vendors were motivated to make it happen sooner rather than later -- before their year-end, to make their sales forecasts. Although ABC leveraged the timeline to their benefit, vendors offer counter this strategy by putting a time-limit on their offers (e.g., this pricing expires on December 31, 2017). This situation can be mitigated with strategic messaging and using the large number of competitors in the PC market to, once again, create uncertainty.
As a buyer, you can control much of the deal’s technical requirements and the budget. If you start early, you can also control the timeline. With an RFP, you can elevate vendor uncertainty to your benefit. It can also help you re-align partnerships or develop new ones. It’s the go-to tool if you want your vendors to earn your business and become a better strategic partner.
Danilo Milevsky is an Analyst II at ClearEdge Partners, Inc.