I’ve blogged before about the trap for service providers that listen to their salespeople and where that purchasing-oriented perspective takes a provider – to undifferentiated offerings, lower pricing, lower margins, standard offerings and low value. But there is a significant part of the market that is dictated by procurement/purchasing departments and, as a provider, you can’t ignore that part of the market. Providers ask us at Everest Group how to up their win rate in these situations.
I’ll answer this question using an illustration of IT infrastructure services demanding greater levels of automation. The provider expects to charge a premium for the increased automation demands, but the client expects increased automation to lead to lower cost. Clients believe high-quality services come from machines or a software-defined world, so fewer mistakes occur and the work requires fewer FTEs – and both drive costs down.
You also need to understand that in an RFP process, your automation story looks exactly the same as other providers’ presentations. You can easily take any provider’s presentation, remove the logos and background color graphics, substitute other companies’ logos and background color, and they will be indistinguishable. Everyone’s pitch around automation and infrastructure looks and sounds exactly like everybody else’s. And the facts that are offered as proof also sound reasonable. So it is very difficult for a procurement organization or a client organization to differentiate between the presentations or even the demonstrations that they see. So how can a provider create differentiation?
We at Everest Group have studied this phenomenon and conclude that if you’re a provider offering services based on automation, you need to come out of the gate with a low price – and ideally lower than the rest of the market. By doing so, you challenge the market or your competitors to meet your price. Your low price is supported by your story of automation – you can get to this low price because you have a greater degree of automation than the other providers. If you try to get to that price by saying you pay your people less, that raises quality issues in the mind of the customer. But if your thesis is you can get to the low price because you have a greater degree of automation, your price is consistent with your automation promise.
Other providers will spend their time trying to come down to your price. That will result in the client feeling increasingly more comfortable with the company that sets the low price and spends time showing how they meet that price instead of the company that is constantly redoing its bid in an effort to beat the lower price.
So the successful approach where automation is a key component is to be the price challenger, not just the automation expert. Then support how you get to that price with your automation strategy.