Large companies with a purchasing function and professional buyers treat the buying process as something transactional. In doing so, they assume their potential "suppliers" are all similar and equally capable of providing them the goods or services they need. To determine who makes the vendor list, they use a process called an RFP, or Request for Proposal.
Many sales organizations interpret RFP as Review Fast and Pass, as the buying approach suggests the company is looking for the largest commitment that provides outcomes at the lowest price available. RFPs seek to subsidize the buying company's clients by removing cost, allowing the buyer to control their costs and better compete in their industry.
Much of the time, large companies that use an RFP process miss out on the opportunity to pay a higher price to lower their overall cost structures, especially when their supplier is left with too little profit to invest in producing better results. Recognizing mistakes like this one is the first step towards buying more effectively.
Mistake #1: Using a Transactional Approach
The problem with most RFPs is that they treat the buying process as transactional when it isn't. If you believe that all companies in a category are the same, that generally reduces your decision to price. As a result, many RFPs require yes or no answers and give little opportunity for a prospective partner to differentiate their approach.
To avoid ending up with the supplier willing to charge the lowest price, even if it means they are almost certain to provide the same poor experience as your existing supplier, you need to start by recognizing that different companies have different approaches, including making greater investments in certain areas. Rather than using an RFP, it’s better to ask questions that allow you to explore several approaches, to determine which one will improve results and pay for itself by improving your results.
Mistake #2: Buying at Arm’s Length
The arm's length approach to buying, whether it uses an RFP or another decision-making process that doesn't allow suppliers access to the people who are going to have to work with them, doesn't account for fit. Any process where all meetings are chaperoned by the purchasing manager—even if it includes a ninety-minute meeting with time blocked for a presentation and questions—is inadequate for evaluating fit.
A better strategy would be to allow the stakeholders who would be working with the new company to meet with several prospective partners, unchaperoned and with no imposed agenda. To make this possible, recognize that the buying decision is not objective, nor is it possible that a narrow set of questions determined beforehand can expose what isn't said or addressed.
The first time you meet a potential partner should not be to review their proposal and ask them questions. Sales may be a bit like dating, but it shouldn’t feature arranged marriages.
Mistake #3: Overvaluing Price
No one over the age of, say, thirty-one believes that you can get better or faster without letting go of cheaper. In the context of B2B sales, there is no way to improve results by reducing the investment you make in something important. The transactional approach to buying overvalues price—even when the buyer selects the second-lowest bidder, to prove it's not all about price.
Because it is more difficult to recognize the difference between price and cost, it's important to do a cost analysis instead of measuring your future results on price alone. Whenever you take money out of your solution, you can expect a decrease in the value your partner can deliver. You can thus expect greater costs when you take the lowest price, or even the second-lowest price. Exploring the investments a potential provider makes will improve your ability to evaluate who can lower your costs if you choose to pay more.
Mistake #4: Excluding Affected Stakeholders
You can count on problems with a new partner whenever you hire them without including the stakeholders who will be affected, positively or negatively. Since they were not considered in an important decision, many will claim the moral high ground to oppose the decision, justifying their choice to drag their feet, complain about the new partner, and occasionally even sabotage the new initiative and the outcomes you need.
It's much more difficult to include these stakeholders in the buying process, but without doing so, you miss the opportunity to get their consensus. More importantly, seeking consensus lets your team vet potential partners by asking them more technical and operational questions, giving them the confidence to vote for or against a potential partner.
Research suggests that many companies have buyer's remorse. Much of this remorse come from treating an important decision with all the gravitas of getting a soda out of the break room vending machine. The more important the outcome, the more time and energy you need to invest in making a good decision.
Every mistake in this list is easily avoided if you invest appropriately in your decision. If you are worried about the time you spend with potential partners, know that choosing the right partner is much more efficient than starting over every couple of quarters.