Procurement’s Animal Farm and How to Avoid Becoming Part of It
Who is the worst person to do the pricing in your firm? Many times it’s the CEO. It’s often the top people in the organization who are the most willing to discount fees and meet the demands of professional buyers. This is what pricing consultant Reed Holden calls the “White Horse” syndrome. The head of the company rides in to “save to deal,” but White Horses mostly erode the value and reputation of the firm.
You might be one of these White Horses. If so, stop to consider this is part of the game professional buyers play. Especially when they smell a lack of confidence on the part of the seller, seasoned procurement professionals will seek to provoke a White Horse event.
Beware the role you may be playing
Unsuspecting professional firms also play the part of the “rabbit.” Holden describes rabbits as the firms included in new business reviews that are invited simply to drive the price of the prospect’s preferred agency as low as possible. Playing the role of rabbit is a complete waste of time. Says Holden, “You’re the rabbit, there for the entertainment of others, with no real chance of winning the business. All the rabbit does is submit a low price that gets used to leverage the advantaged player to lower their price to match yours.”
In compensation negotiations, it’s almost inevitable that your firm will be subject to the White Horse syndrome, the rabbit syndrome, and many more animal farm archetypes until and unless you are prepared to walk away. Behavioral economics teaches us that “loss aversion” is an incredibly powerful human motivation. The more time and energy we have invested in the pursuit of a new client — the equivalent of “sunk costs” — the more likely we are to power on, full speed ahead, no matter the actual odds of success.
Professional buyers intentionally make the buying process long and complex so participating agencies will become more invested in winning and less likely to walk away. If the process followed by procurement seems inefficient and convoluted, that’s by design, not default.
It’s serious, but it’s only a game
This is the great game of procurement, complete with all of the plays and power moves associated with high-stakes games of all kinds. While the consequences can be substantial for the unsuspecting agencies left in their wake, these professional buyers are just doing what professional buyers do. Fish swim. Cheetahs run. Kangaroos hop. And procurement professionals design and play negotiating games. For example:
THE MISPLACED DECK. Have you ever had the experience of walking into an empty client conference room, ready to set up for a new business presentation, only to find a “misplaced” copy of the prior agency’s proposal on the table? That deck was left there on purpose by procurement; you were meant to find it. They wanted you to see that your competition had submitted a lower price, so you’ll be more motivated to lower yours.
THE STRAY FLIP CHART. A similar act of subterfuge is the flip chart that was “mistakenly” left out in plain sight, showing how your agency is ranked #3 in terms of price. Instead of realizing this is likely a procurement scheme designed to scare you into lowering your fees, most agencies take it seriously and play right into the hands of the professional buyers who are merely plying their trade.
GOOD COP, BAD COP. The most common (but apparently still effective) ruse is the “good cop, bad cop” routine, in which the hard-nosed procurement professional and the more sympathetic marketing director alternate roles back and forth as the agency sweats it out under the bright lights of the negotiation.
You can’t navigate your way through a game if you don’t know you’re in one. Once you learn to identify popular procurement ploys, you can play the game more successfully.
A scene from the 1970 movie Patton, with George C. Scott in the starring role, reveals one of the secrets of Patton’s remarkable success in fighting battles in World War II: Patton studied the strategies and tactics of his competitors. As Patton watched through his binoculars as the usually formidable German General Erwin Rommel scurried his tanks away from a battle with Allied troops in North Africa, Patton quipped, “Rommel, you magnificent bastard, I read your book!”