What follows is a true story.
The salesperson called his contact after learning that he lost the big opportunity for which he and his company were competing. After a long bid process and a tough competition, the low bidder was awarded the business. The salesperson wanted to understand why his prospect chose the low bidder and what he could have done differently to convey the value that he and his company created.
There were four finalists. The first three finalists had prices between 1.7 million dollars and 1.9 million dollars. While $200,000 is no small sum of money, it isn’t enough of a difference to disqualify any of the bids; they’re all reasonable, and they all create value for the client.
The low bidder’s price was around $800,000. That gap is too large to understand. There is a major difference in price, and that means there is a major difference in the value being created.
The salesperson pressed their prospect to understand how they justified choosing a price so much lower, that the business couldn’t be done for that price. The contact told him this story.
The contact called the bidding company and asked them why their price was so much lower. He asked whether they could profitably take the business at that price. The salesperson from the winning company told the contact that they were in fact going to lose approximately $1,000,000 by taking the business, but that it was worth it in order to be able to use the prospective company’s logo in their marketing material. (It is a logo that you would recognize, for sure)
Assume a 15% gross margin in this business is customary. The winning bidder needs that logo to equate to $6,650,000 in new business to pay for the $1,000,000 they are losing by taking the business.
I am certain that the winning bidder sees this as an investment. How do you see it?
What do large price differences indicate when it comes to quality and service?
How do your client’s perceive a very low price? How should they perceive the lowest price?
How do you provide your clients with the confidence that you can serve them without showing them logos of the companies you serve? (Not always a bad idea, in my experience)
What happens to clients who underinvest in the results they need? What happens to sales organizations that don’t capture enough of the value they create to serve their clients?
Was the logo worth $1,000,000? Will it equate to $6,500,000 in new sales?