Working on an RFP for a prospective customer last week, I had an interesting experience. The consultancy running the process requested pricing across a broad range of products and quantities. Nothing new or surprising there.
What came next WAS surprising. The company asked that I provide my pricing model by completing a grid of cost drivers. Uncomfortable sharing this information with strangers, I declined to take part in the exercise.
You see, I knew that they were going to use the model to compare its output with the prices I had entered in the grid. Essentially, therefore, I’d be competing against myself. In my view, there’s already enough competition out there; competing against myself doesn’t seem to be in my interest.
The company then requested a phone call to explain to me the benefits of full participation in this exercise. After all, I was to understand, this IS a $5 million annual opportunity. During the call, I learned that the consultancy was going to generate an estimating system based upon all the bidders’ data, allowing the client to “manage” (read: “dictate”) costs over the long run.
While this, arguably, seemed reasonable—if not mutually beneficial—I further questioned how the company would use the tool over time. I learned that the model’s output pricing was something I was implicitly committing to with its delivery. It would be compared to my grid pricing, with the lower number taking precedence.
That might seem like the kicker. However, as they say on late night TV, “But wait…there’s more!”
For the 20 percent of the work that comprised 80 percent of the volume, I would have the “opportunity” to cut my price even further, in the event that I had excess capacity and wanted to fill it with timely work. Consequently, each project would be triple bid between me, myself and I!
Do some of these tactics sound familiar? Where have you been encountering them?
These approaches take the benefits of price discrimination and flip them around to deliver them to the buyer. Instead of a printer measuring and optimizing the buyer’s willingness to pay, the buyer measures the seller’s willingness to sell. The process is designed solely to extract as much of the producer’s surplus as possible, without regard to the age-old notion of mutual benefit.
It also ignores those harder-to-quantify, yet-still-valuable differentiators like service, print quality, consultative counsel and guidance, and so forth. This bastardization of the buyer-seller compact is only made possible:
- by the fragmented nature of our market,
- by the imbalance of supply and demand, and
- by the growing willingness of many on the supply side of the equation to allow ourselves to be utterly and completely commoditized.
It’s the same kind of one-sided and short-sided thinking that leads buyers to think that reverse auctions have a place in our business. In response, I have two words: “They don’t.”
So long as printers allow themselves to compete only—or even principally—on price, we foster an environment that, in the long run, will diminish our role as “value adders” and relegates us to vendors of the lowest common denominator.
- So long as we participate in these charades, we accelerate our own undoing.
- So long as we take this lying down, we should be ashamed of ourselves.
We declined this “opportunity.” We encourage our brethren to do the same.