Why the Evil Strategy Works

by Chris Arlen on November 29, 2010

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OK, we’re talking about facility service contracts here, not cereal.

So, the evil strategy is an intentionally low ball price, one that’s outrageously below market pricing, sometimes lower than labor costs alone. Surprised?

Didn’t think so. What is surprising is that the evil succeeds because it takes advantage of customers’ refusal to admit they selected the wrong supplier. (When was the last time you returned a cereal that wasn’t really a cereal?)

Let’s face it, there are a few black hat suppliers. There are also ignorant and mistaken suppliers; those who through inexperience or human error botch pricing.

But the evil is a strategy of the black hats, and it’s based on knowing that customers won’t back out of a contract for at least 1-year after it’s been bid. Too much visibility, too much egg on too many decision-maker faces.

That gives the black hat time to attain profitability by:

  • Influencing the customer to lower expectations & accept service less than the RFP base
  • Adding scope to increase $ volume above the RFP base
  • Cross sell other services at much higher profit

While the last two bullets above aren’t evil by themselves, they become part of the evil strategy as invisible crutches to an intentionally misleading price, one that hurts customers and damages the supplier industry by:

Setting market pricing artificially low

Do you really think pricing can be lower today than 10 years earlier? Come on, there have been no productivity gains or technology innovations that warrant that kind of absurd pricing.

All it takes is one flagship contract to be reset below ground level for the rest of that market to want to follow. And that can take years of cumulative bad customer experiences before pricing gets returns to healthy wages, benefits, and still skinny supplier profits.

Unfortunately (again), one of the exacerbating problems is that customer contacts no longer have that memory. There’s too many musical chairs among decision makers for that kind of institutional memory to exist.

Commoditizing a particular service industry

To those unhappy customers who have struggled through the evil, they now have a bad taste in their mouth. And that prejudice will likely effect their future bids and interactions with suppliers.

The easiest way for those burnt customers to deal with suppliers then is to look at them as commodities, and we all know we don’t want to be going there.

Increasing vendor management soft costs significantly

Customers who take the bait are stuck with trying to wring out expected service from a supplier skilled in the devilish arts. And who has time for that? Or willing to track, quantify and then report that cost to Procurement?

Unfortunately, third-party management firms feel they’re experts at this sort of vendor management. And as they’re a fee-based supplier themselves, are likely victims of the evil strategy too. They, like their customers, will still pay those soft costs when the time they spend arm wrestling could have gone into something more productive.

What You Can Do About the Evil

There are a few tactics to use against the evil, none as satisfying as seeing the black hat supplier go out of business overnight, but effective none the less.

The following tactics work best when part of your normal business development with customer contacts. Start early and stay consistent.

Testimonials of good against evil

Identify your current customers who were former victims of the evil and get their testimonials. Unlike references, testimonials can include customers’ stories about how they fell for the false claims. Additionally, make sure you ask them to quantify how much that “lower price” cost them in other areas, i.e. management time, rework, missed schedules, etc.

Parse testimonials out throughout the buying process, one every couple of months or so. Hold back the most powerful one for your proposal and presentation.

When appropriate, ask your customer contacts to share your testimonials with other potential decision makers. Of course this requires tact and is best done long before there’s a bid opportunity.

Educate customers to be better buyers

If you have a regular communication channel to prospective customers you can share educational info about service. Help customers become better buyers. Give them info that makes them smarter, and not sitting ducks for the black hat pitch.

Communication channels can include blogs, permission-based newsletters, 1-sheet PDFs emailed, sharing other articles and blog posts, speaking at tradeshow events, etc.

Pricing transparency

A subset of the education tactic above, helping customers better understand service pricing can present a formidable obstacle in the minds of customers when the bid comes around.

If you show customers how costs are built up to the final price, and keep them abreast of productivity and technology innovations in your industry, they can push back on the evil strategy with current market knowledge.

Be Prepared: Black Hats Justify the Evil

Be prepared during the RFP process. Black hats will use the “greater productivity and technological innovation” story to justify why their pricing is so much lower than other bidders.

Unfortunately (again & again), there will be customer decision makers who are ignorant, or desperate to keep their jobs and will use that false logic to back up their lowest-price bid decision.

Knowledge is Power

Don’t succumb to the forces of darkness, nor become depressed. Their will always be those who don’t play fair, honestly, or with good intentions.  Being knowledgeable and proactive are the best defense. Go forth and bid successfully with integrity, but start the preparation early.

~~~~~~~~~~~~~~
Chris Arlen
President, Revenue-IQ

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