In the last 2 weeks, I've had three senior BDMs/CMOs say they've lost significant pieces of work on price. All were with long-standing clients, where both client knowledge and service levels were exceptionally high.
These BDMs/CMOs are exquisitely aware of the long terms dangers of discounting. But they were also wondering how many more losses they could sustain. The unspoken question was clear. "How long can we hold the line before we too succumb and compete only on price?"
However, despite increasing price pressure from clients, greater competition, and everything else, you should still be highly sceptical of conclusion that "we lost on price". And that you must therefore discount to win work.
Frankly, we've all heard "we lost on price" for years. Even during the boom years that ended in 2008, this was the most oft-quoted reason practitioners gave for losing a job, and for wanting to offer a larger discount on the next job. And the reasons for being sceptical are - with one exception - the same as they were in 2008.
Here, then, are 5 reasons to delay reaching for the discounting lever, and what to try instead.
Practitioners frequently interpret a wide range of client feedback as being "we lost on price":
Note that in none of these examples does the client actually say that they chose a cheaper provider, or that price was the reason you weren't selected. Value for money, in particular, is not a comment about price, but a price/value trade-off.
So instead of leaping to the conclusion that you must discount, ensure instead that your bid debriefs include careful probing on price. Ask questions like these:
Sometimes clients will emphasise price when giving you feedback about why you lost, simply because it's less confronting to do so. This can be particularly so with long-standing clients who value the relationship. (For the MBTI junkies out there, this would be clients with a strong Feeling preference.)
Practitioners seldom dig deeply into the non-price reasons for losing a bid. After all, being too expensive is easier to swallow than, say, "we don't believe you have enough experience".
Again, before increasing discounts, first examine the extent to which you get candid and honest feedback from your clients. Confident firms make it easy for them to do so.
I think this is the key reason why practitioners believe they are operating in a commoditised market. Practitioners lack skills in identifying sources of differentiation and convincingly communicating this to clients. The client, without any credible reason for distinguishing between firms, of course makes the decision on price. Practitioners then conclude that price is the only basis for competition, and so put less effort into differentiating themselves. It's a self-fulfilling prophecy, where the practitioner's behaviour - not the client's preferences - drives price-based decisions.
There is ample evidence that professional services are not commodities. Whether you're providing legal, accounting or engineering & environmental services, and whether it's in Australia, Asia, New Zealand or South Africa, this result from Beaton Benchmarks is the same. As my friend Wayne Stewart is fond of saying, "If professional services were commodities, all you'd see is low cost, high quality providers. But clearly there's huge variation on both these dimensions."
Before increasing discounts, then, first check the BD skills of your practitioners - particularly the skills of identifying and communicating differentiation. Many firms could benefit from investment here. (And what better time to undertake skill development than when utilisation is low?)
There are still too many practitioners that are unwilling to provide clients with alternative scope/price options. This happens even when the client has clearly indicated both their budget, and their preference for using the firm. In my views this is nothing more than professional arrogance, where the practitioner has a rigid view of what "must" be done in order to do the job "properly", irrespective of the client's reality.
Let's be clear. If, in the current market, you're unable to conceive of alternatives ways of using your expertise to meet a client's need, you are driving the client into your competitors' arms.
So,before simply discounting, first ensure your practitioners are regularly testing a variety of scope/price options with clients.
This last reason is a relatively new challenge since the high demand days of the noughties.
Embedded in the explanation "we lost in price" is an assumption that competitors are cutting their margin to buy work. But in the current environment, where firms are innovating, this is a dangerous assumption indeed. It's entirely possible that your competitor won the work at a lower price, but at a higher margin. Are you sure that they aren't re-engineering their business process, and taking out costs but working smarter, not harder?
So, before simply eating into your margin, first ensure that the way you do the work is as efficient as possible. This requires you to turn the price challenge on its head, and ask, "How could we do that job for 20% less, while maintaining our margin?"
My bet is, the firms that do this well now will be the firms that will still be with us, in 5 years' time.