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Scarlett Letter #3: Exploring acceptable (?!) pricing strategies when competing for low bid…

Mark Buckshon writes the Construction Marketing Ideas blog. Recently, he published: Seven Ideas for Construction Marketing Success. His second idea took me by surprise, and yet, I am guessing that he’s seen it work again and again, so it must make some sense. Here it is:

2. Great marketing gives you change-order power in conventional price sensitive areas.
As an example, consider the story of a U.S. electrical contractor working in a mid-size Michigan city. The local hospital has lots of work, but everything must be publicly bid, and the lowest price always wins the job. How can the well-established contractor make money and still come in “low”? The key is in the terms of contract which hospital administrators know and understand. The electrical contractor bids low with qualifications indicating that change orders will truly be necessary for a totally satisfactory project. The hospital, knowing the contractor’s reputation for reliability and integrity, knows that the change orders are to be expected. The contractor wins the job, legitimately, on price, and equally legitimately, change orders are processed allowing the contractor a reasonable margin for the work. Note this only works if there is a relationship of trust and integrity - low balling with the intention of pushing through change orders regardless of the clients’ expectations is simply uncool and will sour any future business relationships.

Similarly, In a workshop that I once delivered, we discussed various strategies. One architectural firm owner indicated that for public clients, his firm will use this strategy: submit a low fee, then make mention of all the scope items (and associated additional fees) that should be added in to meet the client’s ultimate expectations. For this firm, the low fee plus additions are intriguing enough that their public clients are willing to talk through it and negotiate to a final agreed-upon (and per this owner, fair) price.

Naturally, as a caveat, I’d like to (and often do) give advice that if you are pitching to clients who only care about price, let the other guy have the work. Instead, concentrate on adding value to the level where price is far less of an issue, and short/long-term savings and hard/soft results become the decision-making criteria. Even so, there will always be the firms that continue to find themselves pursuing market sectors where price is the #1 selection factor. I’m curious to know if any readers have employed either strategy listed above?

           

Tags: linkedin, professional services marketing, professional services sales, scarlett-consulting-marketing-and-business-development-for-building-architects-mep-civil-structural-engineers-construction-managers-general-contractors

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