The Discount Buyer vs. the Value Buyer
“I’ll just bid low and do acceptable on technical and I’ll win.”– Famous last words of business development leaders who only compete on price for any given bid leading their business to “win” unprofitable contracts leading to financial demise.
All too often, we see and hear from business development teams that focus only on “cheap, cheap, cheap” to win. Why? Because through what is largely tribal knowledge, this is what we’re led to believe it takes to win U.S. Government contracts.
Stop the madness! While many U.S. Government buyers are absolutely concerned with price / cost, this is not always the sole determinant of a winning bid. You do not have to just bid low to win.
FedSavvy Strategies routinely analyzes patterns of contract award decisions which has helped us better understand the overarching behavior of a U.S. Government agency as either an extremely price driven buyer (Discount Buyer) or a customer that considers the true value of a proposed solution (Value Buyer).
Let’s explore the attributes of each type of buyer.
The Discount Buyer
This buyer generally never awards a contract to a bidder with a pricing premium over 10% even when the winning bidder earns a full adjectival rating higher (or more) on all evaluation factors and subfactors vs. other bidders.
They tend to be intensely focused on only exactly what was requested and they generally ignore any added features. They tend to make decisions based on “lowest price, technically acceptable” measures no matter what the RFP states. This buyer makes you bid low to win.
Simplified attributes of the discount buyer
- This buyer generally never awards a contract to a bidder with a pricing premium over 10%
- Tendency to low price is consistent even when a bidder earns a full adjectival rating higher on all evaluation factors and subfactors vs. other bidders.
- They tend to be intensely focused on only exactly what was requested
- They generally ignore any added features.
- Decisions are driven by a “lowest price, technically acceptable” mindset no matter what the RFP states.
The Value Buyer
This buyer has more flexibility in terms of how they evaluate offers. Bidders can and do realize premiums of 10% or more vs. competitors with modestly or greatly superior technical offers. Even a few strengths can yield much greater higher prices for a bidder vs. others if agency preferences are met.
This buyer actually practices best value trade-off. They are more open to creativity in offers that yield true value for the agency. This does not mean a bidder will always realize a higher price, but the award trends demonstrate that this is a very real possibility. This buyer does not make you bid low to win, but competitive (not rock bottom) pricing seals the deal.
Simplified attributes of the value buyer
- This buyer has more flexibility in terms of how they evaluate offers.
- Bidders can and do realize premiums of 10% or more vs. competitors with modestly or greatly superior technical solutions.
- Even a few strengths can yield much greater higher prices.
- This buyer actually practices best value trade-off.
- This does not mean a bidder will always realize a higher price, but the award trends demonstrate that this is a very real possibility.
What does all of this mean and how do I use it?
Consider these buyer profiles as a broader understanding of how to shape your solution to optimize chances to win. Don’t go to a U.S. Government agency with some AMAZING solution if they don’t care about anything besides the basics. Of course you need to work the capture to learn about specific customer needs. Agency behavior patterns reflect the impact of policies and practices across an agency. Learn this so you can shape your solution to fit their buyer profile.
Beyond just knowing HOW to bid is should you even bother? Seriously! Why bother pursue a customer that does not fit what your business goals are? Are you dead set against competing in price? Then do not set yourself up to fail by pursuing Discount Buyers and expecting to win.