“The best option of all, is to ask questions to your buyer and the rest of their organization.” – Mark Schenkius in today’s Tip 771
Why buyers run RFP?
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Scott Ingram: You’re listening to the Daily Sales Tips podcast and I’m your host, Scott Ingram. Today Mark Schenkius is back with another super insightful tip. Mark is the founder of ROI 10 where he helps sales professionals get better at dealing with buyers, and he’s also the author of “The Other Side of Sales,” where he shares his perspective after 15 years in procurement. Here he is:
Mark Schenkius: Hi everyone,
Today I’ll share some key insights why buyers run RFP’s. It helps you to better understand how to deal with them. Here’s an interesting opening statement for you:
New suppliers love RFP’s because it’s an opportunity to win business. Existing suppliers fear RFP’s because there’s a risk of losing business. It’s almost that simple.
Therefore, when a buyer runs an RFP, it’s crucial to know for you, as a supplier to them, how likely the buyer is going to change supplier.
If you’re a new supplier, a high likelihood to change is ideal whereas as a current supplier, you obviously prefer a low likelihood to change. So, regardless of whether you’re a new or existing supplier, it pays to know.
Firstly, I’ll run you through 5 options why buyers run RFP’s. Secondly, I’ll give you some tips how you can find out which of these options apply to your particular buyer.
The following 5 options are in increasing order of likelihood to change supplier. The first one means it’s highly unlikely that they will change and the fifth one means there is a high likelihood they will change supplier.
Option 1. Pressure:
The buyer is happy with their current supplier and they want to put pressure on them; probably to lower prices. They use an RFP to create a perception of competition. Needless to say, there is a very low likelihood the buyer will actually change supplier.
Option 2. Policy:
The buyer runs an RFP since this is an expectation from the company, but they have no real intention of changing. There is a low likelihood the buyer will change supplier.
Option 3. Benchmark:
The buyer is benchmarking service or tariffs of their current supplier. There is no real interest to change unless there is a significant opportunity. Medium to low likelihood to change.
Option 4. Benefits:
The buyer is interested in changing suppliers only if benefits can be achieved on quality, service, and/or price. In essence, this is a true RFP whereas the first 3 are fake RFP’s. There is a medium likelihood to change.
Option 5. Change:
The buyer is actively looking to change supplier most likely due to issues with their existing supplier. This is an ideal situation for new suppliers since the likelihood to change will be high.
So, how do you know which of these 5 options applies to you. It’s definitely not an easy one since most of the times, a buyer won’t tell you. However, it’s important to look for signals.
For example, does the buyer have a history of changing suppliers, or do they tend to stick with the old.
Or potentially, any information you pick up in the market around issues with their existing supplier.
And perhaps, the best option of all, is to ask questions to your buyer and the rest of their organization. Ask whether there are policies for running RFPs or ask them under what condition they are open to change suppliers.
In any case, it’s good to know upfront what your chances are during RFP’s, both as an existing and as a new supplier.
Happy negotiations everyone!
Once you’ve done that, be sure to come back tomorrow for another great sales tip. Thanks for listening!