What is Price-to-Win?

Monday, September 28, 2020

When discussing the federal proposal management process, government contractors will often talk about positioning, competitive assessment, and the financial components of a bid. Enter Price-to-Win – where these components converge into a science. Price-to-Win is such an enigma to us at The Pulse, so we sat down the experts at Richter & Company to put their technical know-how to the test to better understand exactly what it is and the logistics of performing this work as an outside hire.

First thing’s first – what is Price-to-Win?

Price-to-Win is not just a number; it’s the position your team needs to achieve based on a detailed assessment of your competitor’s evaluated capabilities and evaluated price. 

Price-to-Win is an assessment of the solutions your competitors will offer to meet explicit customer requirements and implicit values. It’s constructed around a simple principle: that the more capabilities competitors offer, the greater their cost (and generally, but not always, their price).  Per the standard business school definition, the cost is ultimately the expense incurred by a company to offer a service or product, while the price is the amount a customer is willing to pay.  

An effective Price-to-Win is not just numbers pulled out of thin air. It is built on independent, comprehensive Competitive Analysis research (i.e. a detailed understanding of what both commercial and government customers, require and value, and the capabilities competitors offer). 

Results provide “news you can use” to make informed decisions, create solutions that beat your competitors, and meet your business goals.

It is also important to note that effective Price-to-Win recognizes that the standard business school definition of “Price = Cost + Profit” doesn’t always apply.

Is Price-to-Win a replacement for Competitive Analysis, or are they compliments?

The term Price-to-Win has been widely adopted in the federal contracting community over the past 20 years, but to conduct a proper Price-to-Win, data, and assumptions about the customer and the competitors are needed. This comes in the form of Competitive Analysis. Competitive Analysis is about gathering information to understand customer requirements and competitor solutions which allow you the ability to craft a solution that beats your competition. This makes Competitive Analysis the other strategic half of a successful Price-to-Win process. It is nearly impossible to develop the optimum strategy to position your solution without both.

When is Price-to-Win required, and when is it not? 

Simple answer: the more important an opportunity is to your company, the more important Competitive Analysis and Price-to-Win efforts are. Both are used most effectively when performed early in the capture process to help you qualify the opportunities you must win – and the dogs you should avoid.

That doesn’t mean that smaller opportunities shouldn’t use Price-to-Win. All Price-to-Win processes use a wide variety of tools to produce comprehensive results. But effective processes are tailorable to meet client requirements and budgets. For example, if all you need to win a small opportunity is an understanding of competitor labor burdens, our wrapRATER product – one component in our full Price-to-Win effort – gives you that information at a price point low enough to put on a credit card.

Okay, so let’s get into logistics. Who typically performs Price-to-Win?

In our company, Competitive Analysis and Price-to-Win support is provided by experienced analysts who can think outside of the box. We look for people that understand the government procurement process and how to price in response to government solicitations. We train our analysts on how to ethically gather information, analyze it to create actionable intelligence, develop assumptions, and produce accurate, defensible results. On average it typically takes 18 months to spin up a new analyst – an investment we make to help our clients win.

How do you ensure there are no conflicts of interest conducting Price-to-Win amongst various clients?

One simple way is to work for only a single client on each engagement, but our approach goes well beyond that. First, our work is always “outward-facing”, that is, focused away from our clients. We know (and teach) how to write great cost volumes, for example, but will never provide that service to any client, because doing so would create a conflict of interest in the future.  Second, we gather no information from clients and take great pains never to be exposed to their solutions, strategies, or tactics.  And third, if a client asks for help that is outside of our comfort zone, we refer them to partners we know and trust (say, to The Pulse!). Our approach is very simple: to avoid conflicts of interest, we never cross the line.  

How do you work with your clients to ensure they can deliver capability at the “Price-to-Win”?

Unfortunately, we can’t. Why? Our job is to show our clients the position they need to achieve to beat their competitors, but achieving that position – or not! – is a business decision only they can make. 

Here’s an analogy: at an archery range, someone downrange is responsible for setting the target. The position may vary – to the left or write, closer to or farther away, under the bright sun or in the shadows. But once set, the responsibility for knocking the arrow, drawing the bow, aiming at the target, and letting the arrow fly is purely under the control of the archer. 

Of course, we provide recommendations that go well beyond the number itself. Does your competitor have performance issues?  Ghost them!  Your competitor’s technology is outstanding?  Invest Independent Research and Development (IRAD) funds and build a better mousetrap! And shape the opportunity so the unique features of your mousetrap that can’t be provided by anyone else. 

Okay, now it is time to test your technical knowledge. When do you choose to conduct Price-to-Win as a bottom-up build-up vs. top-down estimate?

The top-down process (what we call Price-to-Compete analysis) uses historical award and budget information to identify where the customer tends to make awards and where competitors tend to receive them – in other words, identify their respective comfort zones. Price-To-Compete results are best used in early gate reviews to help you make pursuit decisions and develop proactive solutions using “design to cost” approaches. Effective Price-To-Compete efforts can also be done as an ongoing effort at a very low cost because very little data is required.

The bottom-up Price-to-Win analysis is best performed as soon as customer requirements and evaluation processes are known – typically once the draft Request for Proposal (RFP) is released. This is because Price-to-Win efforts are based on identifying targeted competitors’ solutions, building up their costs, then using their strategies to identify how these costs will be priced. Results are updated as new solicitation documents become available, with work continuing to cover Amendments, Evaluation Notices (ENs), Final Proposal Requests (FPRs), and negotiations (and sadly, protests).

Both processes need to be started early to provide the most useful results.  

When there is no government data available to support a top-down estimate (everything from the budget to an Independent Government Cost Estimate [ICGE]), how do you frame Price-to-Win? 

The joy of having a great knowledge base, built on since 2006,  is that we can look at comparable or similar programs. This prepositioned information provides a wealth of data that can be analyzed – not just raw numbers, but behaviors of competitors in similar situations.  

How do you select rate ranges for individual efforts since publicly available information on rates varies widely based on contract etc., as do discounts?

We don’t believe this kind of analysis is incredibly useful. Why? Because most contract award rates are ceiling values, and in today’s hypercompetitive marketplace, everybody discounts heavily. Instead, we recommend using a bottom-up approach based on current salary data and burdens to project what the actual bid price will be.

Is it reasonable or too aggressive to assume competitors are bidding zero margins, or even at a loss, to gain past performance?

We mentioned earlier that effective Price-to-Win recognizes that the standard business school definition of “Price = Cost + Profit” doesn’t always apply. We believe a better definition is “Price = Cost + Strategy” because Strategy is a better predictor of how a competitor will achieve its business goals. 

Your question is a great example; yes, we have seen bidders use this strategy many times.  We’ve also seen bidders price below cost because their goal was to sell the company and let someone else deal with performance. In today’s hypercompetitive world, if a strategy is legal, you can bet someone will use it.

How do you adjust Price-to-Win across customer sets who have varying best value tradeoff thresholds?

Price-to-Compete analysis provides a great mechanism for identifying the customer’s comfort zone. For example, if we see that a customer tends to make awards at 85% of the budget, we can project where the winning price should be.

Understanding tradeoff thresholds is just one part of developing Price-to-Win results.  Effective Price-to-Win goes beyond quantitative modeling; it provides insights into the customer’s personality (or as The Pulse likes to say – the human element). 

Personality is a qualitative assessment of the customer’s willingness to accept risk, how they work with their contractors, what they value versus what they need – things that help predict how they make decisions that go well beyond spreadsheets. 

We characterize customers using several buying types:

  • Capability-driven buyers want their every technical wish fulfilled. Their definition of best value is “the most bang for the buck”, and they will generally be willing to spend everything in their budget to get it.
  • Cost-driven buyers treat every purchase as a commodity. They do not want to spend a penny more than necessary. They look for the best price, even if what they get maybe technically inferior.
  • Value-driven buyers will trade off price for capability based on what they value. 

At the end of the day, Price-to-Win is more about people and behaviors than hard numbers.  

How should you build your pricing strategy around specific issues (i.e.Brand Name Justification [FAR 6.302-1], Firm-Fixed-Price [FFP], Variable Pricing Model, and Time & Materials [T&M])?

Difficult question – not because of content, but because it presumes a specific point of view.  Our job as Price-to-Win analysts is to look at our client’s competitors, not our clients themself.  As a result, we review:

  • each opportunity’s requirements
  • customer’s definition of value
  • how requirements are defined from our targets’ points of view to identify nuances and ambiguities that they can seize on
  • how they would modify their solution to gain advantage

Once we’ve done that, we can offer recommendations to help our clients beat them – or when we honestly believe it appropriate, recommend they walk away.

Can bundling deliverables into FFP buckets add value?

It’s a very common strategy, and one the Government has recognized over time.  As a result, they now often limit what can be placed in these buckets, making the strategy less useful.  Remember how bidders on overseas programs used to toss Hazard and Hardship differentials into Other Direct Costs (ODCs) with defined plug values? The Government incurred costs beyond what they expected, and now often require that differentials be included in labor costs.  Sometimes – but not always. 

But a more general answer: we look for ambiguous or contradictory requirements and project how competitors (and as a result of recommendations, our clients) will game the system. This gaming analysis is a key result of an effective Price-to-Win effort.

What is the one thing you would like readers to walk away with?

When it comes to Price-to-Win Analysis, “Price-to-Win” is more than a number. 

It reflects the complex relationship between customer needs and budgets and bidder solutions and strategies. It represents a tradeoff between price and capability that forms the foundation for successful bid strategies. Determining the impact of these factors to define an opportunity’s Price-to-Win requires a detailed analysis of customer needs, budgets, and spending patterns, along with competitor solutions, strategies/tactics, and aggressiveness.

To learn more about the services Richter & Company offers, contact Michael Higgs, Director of Business Development, at 301-845-7300 or via email at mhiggs@richterandcompany.com.

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