Get Paid to Play. How to Win When Losing!

Issue: 
September-October 2009

A RECENTLY READ BOOK has some good stories about the value added benefit created when you enter the competitive marketplace. It also suggests that businesses should be ‘paid to play.’ Many of the lessons provided suggest the importance of ensuring your customer is aware that your participation in the bidding process is required. We may all recognize this as common sense; however do we realize that it is not unreasonable to request payment for this service? Business people seem to have a natural sense to offer competition for free. The prospect wants a bid, I’ll give a bid. Why not slow down and consider the question, “How important is my bid to the customer?” If not important, reconsider bidding at all. You are not likely to get the job and if so, there will be little money in it.

Consider this story. In June 1989, BellSouth entered into a bidding war it expected to lose. Up for grabs was the cellular phone network of LIN Broadcasting Corporation. Cellular phone icon Craig McCaw had made a bid and LIN wanted to increase the value of its shares.

By asking other parties to come into the game, LIN was assuring itself that a price war would be started, or so it thought. Only after being assured of a $54 million consolation prize and $15 million toward bid preparation expenses did BellSouth agree to join the game. After round one, BellSouth asked to be paid a new expense cap of $25 million prior to entering second round negotiations. Eventually McCaw won the bidding, LIN increased its value by $1 billion and BellSouth received $79 million for its trouble. Everyone ended up a winner!

Consider a tree service contract. A prospect calls and requests a bid on services to compare against their current contractor. You know and expect that your bid will be presented to the incumbent to try to match. This situation creates two losers. Unless your competitor is pricing his service beyond reasonable market value, you must aggressively undercut his price by reducing your margin. He is then forced to reduce his margin or lose the business. Regardless, the customer wins (or maybe not because quality may be reduced) and both contractors lose. Even if you win the business, you lose money by devoting resources to work with lesser margin than other potentially available work.

If you recognize that the customer is just using you to get a better price (sometimes they will even admit it if you ask the right questions) then it should not be unreasonable for you to request payment for this service. While it may be brash to ask for cash, in certain situations you can require fees towards bid preparation costs or other conditions; perhaps a ‘last look’ clause providing you with the final opportunity to match any other bid. How about turning the tables and asking the customer in a written agreement what he wants to pay and then you decide if you will sign to do the work for the proposed price. Car dealers use this technique well. Maybe it is not out of line in asking for cash. Why not ask the prospect to guarantee you a fee equal to a percentage whereby your bidding effort has resulted in a reduction of the competitor’s price. After all, if the customer will only benefit with you as a player in the game, he has something to lose if you are not at the bargaining table. This places you into the position of power and not the customer. Recognize that competition is valuable. Don’t give it away. Get paid to play.

As a final note, do remember to be very careful when developing competitive strategies so as not to accidentally overstep regulations of the Competition Bureau Canada. Efforts to gain advantage through collusion with others to create an ‘exclusionary effect,’ fixing prices or other anti-competitive behaviour may be strongly frowned upon by the bureau and perhaps even deemed a criminal action.

— Scott can be reached at 905-260-9134, toscottm@hotmail.com

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