Last week we discussed the issue of when and how to respond to a B2B RFP that you weren’t expecting to receive. This week we’ll explore the RFP issue from a slightly different perspective—that of the preferred vendor. (As with the last post, our discussion is limited to B2B companies and not RFPs or RFQs associated with government contracts.)
Here’s the situation. You’ve been in talks with a company for days, weeks, or months. You’ve performed a full value analysis, and they’re very interested in purchasing your solution. At this point, they announce that their company’s policy dictates that they put out an RFP and solicit competitive bids.
Why RFPs Contribute to Price Wars and Commoditization
As we explained in the previous post, this doesn’t mean they necessarily have any intention of purchasing from someone else. You’re still the preferred vendor, so winning the deal is not necessarily the primary issue.
The fact that they’re delaying their purchase decision is obviously not ideal, but even that’s not your real problem. The biggest trouble is that the prospect will use the lowest-priced proposals to negotiate a lower price from you. They’ll say, “These three vendors say they can offer us a similar solution for 10 percent less. If you can drop your price by 10 percent, we’ll buy from you.”
As we explained in our last post about RFPs, this has deeper implications beyond a price discount on a single deal. This process actually affects the entire market, because it accelerates the natural price decline that happens with all products. In other words, the prospect’s choice to solicit competitive bids and leverage low offers to negotiate price discounts puts you dangerously close to the territory of commoditization and price wars.
Three Questions to Ask Prospects Who Want RFPs
The good news is that you can use some compelling arguments to help your prospect see the wisdom in moving forward with a purchase decision instead of soliciting competitive bids. Here are the key questions you want to ask the prospect to get their team to start thinking differently.
- How long will it take you to build an RFP, send out bids, and review submissions?
- Who on your team will be involved in that process? What is their time worth?
- How much value (either in terms of cost savings or revenue gains) will you be forgoing by pursuing an RFP rather than making a purchase decision now?
These questions are all designed to highlight the prospect’s cost-to-delay. The cost-to-delay is how much your prospect is losing per month, week, or year by not investing in your solution. To calculate it, simply divide the value your solution delivers per year by 12. When the prospect hears you say, “Putting off this decision will cost you $120,000 a month,” they feel a sense of urgency to make a purchase decision. (There’s a reason we include cost-to-delay as an output in our ROI calculators.)
What to Say to Prospects Who Want to Solicit Competitive Bids
Here’s a script to show how you would approach the prospect and position your argument in favor of moving forward without putting out an RFP.
At this point, many prospects will see the wisdom of forgoing the RFP process and moving forward with their decision to purchase from you.
