Lowest Cost Is Not Necessarily The Winning Price

Pricing to Win (PTW) is a process for achieving a combination of capability and price that produces the desired win probability.  

Some people believe that “pricing to win” equates to being low price. In today’s marketplace, lowest cost is not necessarily the winning price. Lowest price only works in Lowest Price Technically Acceptable (LPTA) competitions.  

Fundamentally, pricing to win is the process of choosing the right combination of price vs. capability that is more attractive to the customer than the competitors’ offers. Consider ways to:  

  • Determine customers’ price expectations. 
  • Use customer buying trends to determine a price to compete. 
  • Apply the price to compete in early capture management efforts. 
  • Analyze competitors’ prior contract awards to refine a price to compete. 
  • Exploit competitive intelligence to estimate competitors’ bid positions. 

PTW begins with understanding customer’s buying behavior through careful research and analysis of current and past budgets and trends. Define the winning price window and the price to be competitive through research and analysis of your customer. 

The next step is conducting a competitor analysis. Both award- and opportunity-based competitor analyses are important steps in pricing to win. 

The price to compete is your first estimate of the PTW. But it lacks one of the two major features of the price to win: capability. Let’s talk about the price portion first, the price to be competitive. 

The price to compete is derived from top-down analysis of what portion of its addressable budget the customer typically spends. Remember that some customers take their operating budget out of the addressable budget and percentage for “hold back”. What remains is available for the bidders. 

Standard terminology and methods can help you evaluate potential solutions and prices relative to customers’ expectations and competitors’ probable offers. Shipley’s Winning Price Window (WPW) shown below, is an excellent presentation format that helps you analyze, visualize, and act on competitive intelligence.

The WPW is an area of the price/capability trade space where bids must lie to be considered competitive by a customer. It is bounded in the price dimension by the minimum credible budget and the addressable budget. In the capability dimension, it lies between the minimum acceptable and maximum justifiable capabilities. Bids outside the WPW are risky; the further outside they fall, the riskier they are.  

In the price dimension, the WPW lies above the customer’s minimum credible budget (their perception of what is too cheap) but below what is called the addressable budget (maximum the customer can spend). 

Generally, there are three types of buyers: 

  • Budget-limited customers are going to choose solutions near the top of the window, close to the addressable budget line. 
  • Capability-satisfied customers will choose solutions near the left boundary, near the minimum acceptable capability limit. Their preferences will, in fact, be for solutions in the lower left corner. 
  • Best-value customers might consider a much wider range of possibilities. 

Remember, the goal of pricing to win is to shrink the WPW over time through competitive research thereby narrowing the range of uncertainty and adjusting the boundaries prior to submitting a bid. 

Price to win is a combination of your solution’s capability/features and price. Improve your position by analyzing the relative costs and benefits of existing and potential features of your solution. Add features that offer the greatest value at minimum relative cost. Eliminate expensive features that offer relatively minimal benefit. 

Developing a strategy to achieve the price to win marks the transition between the work of pricing-to-win analysts and the sales/capture team that develops, prices, and refines the solution. The sales/capture team works collaboratively with the customer, trying to influence the customer to prefer the proposed solution.  

There are many pitfalls in using PTW that can lead to a losing proposal. The list below is just a few: 

  • Lack of customer knowledge, such as available budget, their perception of value, and type of buyer 
  • Lack of research of the competition and their probable offers 
  • Poor understanding of the market 
  • No win/loss database with customer and competitor data 
  • Leadership wanting to price to “leave nothing on the table”  
  • Pricing bottom-up with no regard for the customer or the competition 

In summary, PTW is a never-ending process of gathering and analyzing customer and competitor data. Then, using that data to determine a price to compete in the WPW. Once there, determine how best to provide the best mix of capability for the price to win the job.