There’s one main negotiation reason procurement professionals/buyers send out Requests for Proposals (RFPs) – to create leverage by developing better Plan Bs to their Plan A (which is not buying or just sticking with its incumbent).
Of course, sellers also seek leverage by sending RFPs to potential buyers. Investment bankers on the sell side of transactions solicit bids from private equity buyers for this very reason.
Leverage thus dominates negotiations involving RFPs.
In my last column, I recommended that those responding to RFPs: 1) request some personal interaction upfront; and 2) evaluate their counterpart’s goals, interests and alternatives.
Here are two more recommendations, which also help those sending out RFPs.
3. Differentiate from your counterpart’s Plan Bs/your competitors/other bidders
My training and consulting products and services are not commodities, and I suspect that neither are yours – be it legal services, software, consulting, or something else.
But those sending RFPs want you to act and feel like a commodity. It’s more powerful to compare apples to apples (commodities) and then just negotiate on price than otherwise.
Don’t accept this characterization! How do you differentiate your product or service from the RFP sender’s Plan Bs/your competitors/other bidders? The more you differentiate and illustrate your unique value proposition in ways that satisfy your counterpart’s needs and interests, the stronger your leverage and the higher the likelihood you will get your best deal.
Possible differentiators in addition to price include quality, service, efficiency, reliability, responsiveness, financial strength, payment terms, security, and the list goes on.
Years ago, I presented a negotiation training program to some CEOs at a conference in Hawaii. One CEO told me his biggest customer had recently hired a new manager who came in with a mission to cut costs. So the new manager solicited bids from other providers looking for the low price leader.
Shortly after doing this, the customer experienced an unexpected crisis and called this CEO in a panic on a Saturday. It needed work done by Monday morning or it would have hundreds of unhappy clients.
This CEO jumped right on it and brought in his employees to work on Sunday to satisfy this customer’s immediate needs. He ended up re-signing this customer to a long-term deal, even though he provided a commoditized service and was among the higher-priced bidders.
His differentiator? An extremely high level of customer service.
One more leverage-related RFP strategy – build up a strong pipeline of your own Plan Bs to doing the RFP deal.
I recently did some training for a large law firm, and an attendee told me one of his senior partners rarely responded to RFPs. She was such a great lawyer that her phone constantly rang with new clients. That’s strong leverage!
4. Offer-Concession RFP Bidding Strategies
How aggressively should you bid? Should you provide your standard fees? What about including volume discounts? Should you start with your bottom line or build in room to move. Will there even be an opportunity to negotiate and revise your bid later?
These are all difficult questions relating to your RFP offer-concession strategies. Of course, there’s no one-size-fits-all answer. But consider these factors.
– The stronger your Plan Bs (and thus your leverage), the more aggressively you should bid. If your factory is running at 100% capacity, expansion takes time, and you can’t deliver any new product for a year, be aggressive. Vice versa, too.
– Emphasize your true value proposition and unique differentiators in your bid and how they satisfy your counterpart’s needs and interests.
– Keep your finger on the pulse of your market and your competitors’ prices, value propositions and differentiators. I regularly research this to ensure the fairness of my fees, but you should do extra investigating if you know or can find out who else will bid.
– Identify objective criteria and benchmarks justifying the “fairness and reasonableness” of your bid (based on my Third Golden Rule of Negotiation: Employ “Fair” Objective Criteria).
– Be creative and include unsolicited elements if you feel they satisfy your counterpart’s needs and interests.
– Consider providing several equally agreeable options from which your counterpart might choose.
– Usually build in some room to move after you bid, assuming an opportunity exists for it.
Finally, follow up, even if you don’t get the deal. This can be a great opportunity to find out the strengths and weaknesses of your bid and help make your future bids
Latz’s Lesson: Success or failure often directly derives from leverage in RFP negotiations, so differentiate from your competitors and consider various offer-concession strategies in drafting your bid.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com.