Episode #0037 - Why tenders destroy value - and your will to live!

In this episode of Pricing College Aidan and Joanna talk about tenders - and why they often destroy value, and any interest you may have in working with a company.

Tenders have lots of clear flaws - and whether they get the best price or the best supplier is far from certain.

 

What's the number one thing that you love about pricing, perhaps that you don't like so much about pricing? When I asked this question people generally tell me the negative, and B2B, guess what it is? Tender pricing. People hate going through the process of tendering with the customers. So today we're just going to talk about some of the frustrations and problems with pricing and tenders.

If you think what we're doing here is moaning and complaining, you will be exactly right. That is the entire intention of this podcast today. The thing that gets on my nerves about tenders is, in many instances, they're pointless. I'll give you an example if you think about a customer buying a product or service, say you're going out to buy anything. What you generally do is, you do the research, you find out the answer, you compare, you ask for reviews, you kick the tires, you do the legwork. You make an educated decision and then you make the right purchase. The tender process in general does the exact opposite of that. What it generally does is, it does no work or pretends to have done no work in advance. And sends out a list of questions that they want to be answered. Then basically the marketing department combined with the sales department and pricing department in a company, fill these things in. It's almost like the worst possible way to find out and to inform yourself about buying any product or service.

In a way it's really like a guessing game for everybody concerned. It shows who’s an informed buyer, who’s an uninformed buyer, who’s an informed seller, and who's an uninformed seller. But unfortunately, it doesn't give either the buyer or the seller a chance to have a meaningful conversation about the number one thing, customer value. And how the sales team can help deliver on particular problems a customer may have.  It also doesn't give them the real opportunity to discuss specific things that the customer needs. Often in this process, it's a very one-sided process, with not enough questions and not enough communication. So I think the communication breaks down completely.

What we can do is go through what we think are some of the more annoying or nonsensical aspects of the tender process. I'll start with number one, say you're going to buy an industrial product widget or let's just call it widgets. I have no idea what a widget is but let's say that. So what you do is you go to the industrial company who specialised in making widgets. You ask them to provide you with a colourful document with nice photographs describing the products and services. Are you honestly telling me that you are going to look and compare the quality of the brochure, and the type of photographs? To me, that's ludicrous. If someone can provide the service, a tradesman could do a service but that does not necessarily mean they can also fulfill and fill in complex data documents. 

I think what you're touching on is a good point. I think often we're using sort of old school marketing techniques to promote our goods to customers. Sometimes the customers don't care either about how fancy your marketing brochure is. How colourful it is and how glossy and thick the paper is. They want their problems to be fixed. Often in the past, they would have gone with leading brands who could have perhaps given them all of the above. And that glossy brochure, however, that's debatable now. Very often, especially if it's in niche B2B products and services, you have to go to a smaller player who does specialise in specific products. They may not have all that glossy brochure. But they do have the insight. They have the knowledge of your problem and they have the solution. But the problem with the tender process never gets to that point where you can have a meaningful discussion about the problem or the solution and get that right mix and fit.

The second clear nonsensical aspect of tender processes to me, is that what you're doing is they’re saying, I don't know research, this is the procurement team. I don't know what the product or services are. You tell me about it but only in this very strict regimented system that I want you to tell me about. If you don't know what you're buying, should you be dictating to the person who’s telling you what they can tell back?  Look, I'll give an example. Say you're up on a murder charge and you're looking for the very best lawyer out there. You're not going to go in and start dictating to the lawyer what they should tell you when trying to convince you to buy their services. There's an arrogance in it, and to some extent it's, it's just foolhardy.

I've seen quite a few tender documents now. And often a lot of them have been put together badly. They're often just cut and paste from older RFQs and put together. They don't go into detail about what the customer wants. They're just given out and sent out to lots of different selling organisations and businesses. The pricing team and a sales team have to work with that document. And put something together that's meaningful in terms of pricing, the business executive summary, and all the value you can offer. But really, the tender document itself was put together in literally five minutes. There are many mistakes in them, so it's very difficult. Again, how are you supposed to have a conversation and build value from here?

Another aspect I'll say is the ability to add value through a tender to differentiate yourself. Tenders often seem to be set up on a very much a price drilling down. I'll get onto the pricing card last because that's my real packet. But the one whereby your ability to add value to the process is just incredibly limited. You’re trying to ask really strict questions, are they ever going to read or compare? I have no idea. I can't imagine they are. A lot of your ability to say, why are you different? Why should you not be in this category? If there’s no room to excel, or to do, or to take part in it. So, it's a bit like the old saying about the rat race, “the only way you win the rat race is not taking part”. So it's yeah, it's a tough one.

The last quite annoying thing about tenders would be that idea of, who are you competing with? Are you competing with anyone? You'll be told that your price is too high. It's an inevitable outcome from the whole tender process. They'll come back to you and say somebody is competing and giving me exactly your offer. But for less money and you're supposed to believe them. It's debatable, no two businesses are the same. Operational costs are different. How businesses run are different. The pricing, therefore, is different, the value offered to them is different based on supply. The quality of the products as well as the insurance of any risk happening. Tons of things that could be involved in that pricing and they come back to you and say, “your price is too low, you've got to lower it”. I call this to some extent, procurement technique, it's a phantom bid. So why would you go through a whole six to nine-month process with a tender, and just be told, your price is too cheap. Then you've just got to lower those prices right at the end of the tender process makes no sense.

Fundamentally, the pricing card makes no sense on many levels. As Joanna said, it does make a lot of sense if you've completed the entire document. If the entire document shows your differences, your pluses or how you're stronger or better than other competitors. Why then is someone in procurement coming back to the end of the process, saying you're slightly higher in this area. What was the point of the differentiation in the entire 100-page document prior to that? The other thing I'll say about it is tender documents, they've already said upfront we do not understand your business. Tell us all about what you do, but then fulfil and complete this red card. We will dictate to you how you should fill in and how you should charge for your time. It's like telling again the example of the lawyer, the Johnnie Cochran character trying to get OJ off. It's like, are you going to dictate to anybody who's an expert in their field how they should charge for a service? and what they should do? It reminds me of the classic example. I think it was Nikola Tesla, the famous inventor who was in a factory. This is probably not a real story but I think it was Henry Ford who said, oh there's a rattle in the wall, and he goes how I sort of to charge you to fix the rattle. So, Tesla walked along and he touched the wall once. He got a hammer, and he put a hole in the wall and the noise disappeared. Henry Ford was hammered with that cost and went to find the hole 20 bucks and to know where to look for another 20 thousand bucks.  When you're an expert in any field, you determine how you charge. You don't let someone who doesn't know the product or service dictate this to you. So that's all I could add on tenders. I'm going to calm down now because even the concept of tenders winds me up.

So from this what I've got is obviously, it's a dysfunctional process. Something has to change, sales, companies, businesses, obviously don't like it. They've got their sales team on one hand going through the pain. And yet that procurement team is probably giving other businesses equally annoying documents and processes to go through. Let’s think about how we can improve it through business. And also, do procurement enjoy going through that process too? Is there some other way that they could think about making that whole process more meaningful? Having that better discussion. Asking better questions just to get cut through that process. Get to the point where you're fixing real business problems, making money, lowering costs, increasing revenue. Because that's really what all of this is about. The tender process doesn't fix any of that.

Just one more thing sprung to my mind there with tenders and again it's a nonsensical thing. How often do you look in newspapers and you see a major infrastructure project has blown out costs wise to huge degrees from a billion dollars to $3 billion. But the same person building it keeps going, and to some extent there you go well,  how did that tender process work in the beginning? Did they just dictate what they wanted to be told? They didn't want to listen to other maybe factual truths from other suppliers, and they picked the lie that they liked the most. Basically, you're not lying to the procurer but to some extent, you can't tell them the full truth. Because they've already told you they're not gonna listen to it. So, yeah it's people who get what they deserve in many regards, and that's all I got to add.