Executive Summary
Service providers often feel frustrated when they are funneled into a procurement process to win deals with clients. Their choice, as they see it, is either to walk away, or capitulate to procurement’s rules, thus losing the opportunity for potentially significant value creation (and future profit). They enter a predicament called “winning the pitch but losing the negotiation.” But it doesn’t have to be this way. Rather than deciding how to respond to ultimata and threats, sellers can instead use two key moves to improve their fortunes: Analyze the set-up and shape the process.
Imagine the feeling: after months of courting a new client, who has given every indication that a lucrative contract award is imminent, you receive an email from their procurement team. The letter states that there will be a competitive bidding process; that all bidders must agree up-front to standard (onerous) terms and conditions, and that any attempt to speak directly with the client will result in expulsion from the process.
This unsettling scenario is increasingly familiar to many sellers – and most assume that negotiating is more or less futile. Their choice, as they see it, is either to walk away, or capitulate to procurement’s game rules, thus losing the opportunity for potentially significant value creation (and future profit). They are about to enter a predicament we call “winning the pitch but losing the negotiation.”
Over the last several decades, we have coached and trained both buyers and sellers through many similar situations. We have seen buyers waste time and money by structuring pitches in ways that destroy value – and sellers lose time, money, and emotional balance by navigating those processes naively.
But it doesn’t have to be this way. Rather than deciding how to respond to ultimata and threats, sellers can instead use two key moves to improve their fortunes.
Analyze the set-up. Imagining how one’s counterpart views a negotiation leads to more valuable outcomes for both parties. Unfortunately, sellers are usually in the dark about the assumptions and habits of procurement professionals. They assume that a competitive pitch process has been carefully thought through and that it reflects the client’s true priorities; in fact, this is often not the case. Procurement teams often default to a tightly controlled and highly leveraged competitive pitch process because it is easier to administer than trying to negotiate across complex internal stakeholders and multiple suppliers simultaneously. Moreover, procurement leaders are often incentivized by short-term metrics that encourage a simple zero-sum negotiation mentality and foster a control-oriented process mindset.
Sellers also mistakenly assume that procurement departments have the authority to impose process rules and requirements. Ask a Chief Procurement Officer how much actual decision-making power procurement has in a typical organisation and the answer is: “surprisingly little.” Indeed, procurement is rarely the final decision maker, no matter what they may tell sellers.
To assess the decision process, it’s helpful to think in terms of the deal’s “DNA,” a term we use to differentiate:
- Decision owners (who actually approves or can block the final decision?)
- Negotiators – or negotiation process setters (like procurement)
- Advocates/Advisors (who have a stake in the outcome and/or might shape the decision criteria) or process.
Sellers should ask process-setters how the ultimate decision will be made and who will be involved, but should also treat the assertion of decision ownership by procurement as a hypothesis to be tested, rather than the settled truth.
Sellers should also work to understand the buyer’s key business requirements and how they were developed. If the Request for Proposal (RFP) already includes a set of business requirements, ask questions to clarify where the requirements came from and whether they truly capture the scope of value in the client’s mind. If no business requirements have been provided, ask for them. Sellers should seek to understand from buyers how they have understood the interests (goals and concerns) of varied internal stakeholders – each of whom may believe that their needs are most important. Asking procurement about the thinking that went into business requirements can sometimes lead to invaluable conversations and insights about what is truly most important to the internal client(s), and why.
Finally, sellers should think carefully about whether the stated business requirements accurately reflect all key client interests. An RFP may omit key client interests when procurement fears that naming them might give away leverage (sharing a desire make a decision quickly, for example). There are also typically psychological and organizational interests in play: buyers typically want to be treated with respect, be seen by their internal clients as having done a good job, and avoid feeling exposed for lacking technical or market knowledge. Since meeting unstated interests can sometimes profoundly influence both process and outcomes, sellers are wise to craft solutions and deploy communication tactics that anticipate and meet both unstated interests and stated business requirements.
Shape the Process
Having worked to understand the set-up, sellers can almost always find opportunities to politely challenge, disrupt, and change the rules of a competitive pitch. Power in negotiation comes from many different sources—the strength of each side’s no-deal alternatives; the current or future dependence of one party on another; the power of a uniquely responsive solution; the power of precedents, criteria and benchmarks; the power to shape the other party’s future reputation or opportunities, and so on. Facing many competitors doesn’t rob each seller of all power.
Moreover, power is almost always dynamic during a pitch process. A seller can often find leverage at the precise moment when they are about to enter into a pitch, particularly in situations where their inclusion is desirable to the client (e.g., an incumbent seller, or one with whom the decision maker has worked before). Suppose, for example, that procurement’s RFP attaches a standard supply contract containing onerous, one-sided legal terms and conditions (extended payment terms, unlimited liability provisions, uncapped consequential losses, claims of ownership to all intellectual property, etc.). Faced with losing a highly valued seller who is not prepared to accept the unreasonable contract clauses, a buyer will often make process concessions to that seller, or to all sellers.
As a pitch progresses, the buyer may provide templates and spreadsheets that must be completed in a very specific and restrictive way (sometimes defined by a narrow or incomplete description of the true business problem). Sellers may be told that failure to comply within the response format will lead to disqualification from the pitch. While designed to help procurement to compare responses more easily, such restrictions can hinder the proposal of value-creating solutions, and sellers can consider three politely disruptive moves, emphasizing why they might help the buyer to realize greater value:
- Re-imagining the business problem: a seller can fill out the template, while also challenging the premise of the business problem that the buyer has described in the RFP, and providing a supplemental, separate response to the problem they believe the client really cares about.
- Offering multiple packages: a seller can provide one response using the format required and provide several other proposals that might vary scope, staffing, price points, and incentive or compensation models. Providing MESOs – multiple equivalent simultaneous offers – is an effective way for sellers to demonstrate creativity and effort in solving problems, to provide a context for the relationship between price and value, and to uncover true buyer preferences.
- Bypassing communication restrictions: while this move must be considered carefully, bypassing unreasonable communication restrictions – by speaking to the client directly or cc’ing the client or decision owner in a summary of understanding, or a summary of what has been proposed and why – can sometimes help to clarify what is actually most important in a solution, or whether a requirement is truly critical.
Toward the end of the pitch process buyers typically narrow the field to a short-list, seeking to maintain leverage by using aggressive process tactics. They may run eAuctions where price is isolated from all other issues; or set time deadlines by which final prices must be submitted. This is a moment in the process when sellers are most at risk; because the sunk costs of pitching, internal leadership expectations and pressure, and the possibility of winning can lead to significant and unilateral concessions.
At these moments, sellers must remain disciplined. While remaining confident in their ability to create value for the buyer, they can also keep their cool by remembering that, at this late stage, it is highly likely that buyers have already identified a winner and are merely using the other sellers as leverage to improve on price and terms. This is particularly the case when the purchase is complex and the scope of value to the buyer of finding the optimal solution is high.
Rather than following passively, sellers can proactively shape the endgame through three moves. First, sellers can propose a period of exclusive negotiation in which the interests on both sides can be fully explored, and options enhanced and re-packaged. Second, they can employ deadlines – a time by which a proposal must be accepted, or by which an award decision must be made – after which the seller withdraws from the pitch. Finally, after the buyer announces that the work has been awarded, but before legal contracts have been agreed, sellers can hold back delivery of products or services until key contract terms have been agreed.
A Fresh Approach Sellers often bemoan the tactics and constraints imposed on them in competitive pitches. But procurement isn’t going to disappear as a function any time soon, nor should it. While we can hope that procurement professionals work to enhance pitch processes, sellers must learn in the meantime to be more proactive participants in approaching, navigating and shaping competitive pitches in ways that promote mutual gains – rather than pyrrhic victories – for themselves and their clients.
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