Post hoc ergo propter hoc is a logical fallacy that states, "Since event Y followed event X, event Y must have been caused by event X." And that pretty much sums up our response to missing out on a piece of work or appointment to a panel. “We submitted a price, we missed out on the work therefore we must have lost on price.”
However, even if you have been told that that is the reason why you missed out on the work, appearances can be deceptive.
It is worth taking a closer look because things are not always as they seem.
The latest Altman Weil Law 'Firms in Transition' report found that when general counsel were asked to prioritise the single most important approach to pricing by their external law firms in relation to everything but 'bet the company' work, the results were perhaps not as most law firms might have predicted;
Price transparency – 36.4%
Pricing certainty - 33.7%
Value-based pricing - 20.3%
Lowest price - 9.6%
There is a profound dissonance between these survey results on the one hand and the perception that price accounts for 90% of the reason why firms miss out on work. How can this possibly be the case when lowest price ranks so low in the list of clients' priorities?
To be sure, there are many situations where it is almost entirely about the lowest price e.g. public sector procurement (notwithstanding the disingenuous gloss often put on the process – "pricing comprises 60% of our scoring" – yeah right!)
However, despite increasing price pressure from clients, greater competition, and everything else, you should be highly sceptical about concluding that "we lost on price", and that the only solution is to give even deeper discounts in the future
Here, then, are 7 reasons to reflect more critically on the jobs you missed out on.
1. The client did not say they chose someone cheaper
Practitioners frequently interpret a wide range of client feedback as being "we lost on price":
"We rated you lower on the price criteria."
"Your rates were the highest of any bidder."
"The selected provider provided better value for money."
Note that in none of these examples does the client actually say that they chose a cheaper provider, or that price was the reason you weren't selected. Value for money, in particular, is not a comment about price, but a price/value trade-off.
2. The client did say your price was high, because it's less confronting.
Sometimes clients will emphasise price when giving you feedback about why you lost, simply because it's less confronting to do so. This can be particularly so with long-standing clients who value the relationship and may wish to continue that relationship but for one reason or another, don't wish to use you on this particular matter.
Practitioners seldom dig deeply into the non-price reasons for losing a bid. After all, being too expensive is slightly easier to swallow than, say, "we don't believe you have enough experience" or "the winning bid demonstrated much greater sector and industry insight".
3. The client did choose a lower priced firm, because you didn't differentiate yourself
I think this is the key reason why practitioners believe they are operating in a commoditised market. Practitioners lack skills in identifying sources of differentiation and convincingly communicating this to clients. The client, without any credible reason for distinguishing between firms, of course makes the decision on price.
Practitioners then conclude that price is the only basis for competition, and so put less effort into differentiating themselves. It's a self-fulfilling prophecy, where the practitioner's behaviour - not the client's preferences - drives price-based decisions.
4. The scope you proposed didn't meet the client's budget
There are still too many practitioners that are unwilling or unable to provide clients with alternative scope/price options. This happens even when the client has clearly indicated both their budget, and their preference for using the firm. There is a real risk of this being perceived as professional arrogance, where the practitioner has a rigid view of what "must" be done in order to do the job "properly", irrespective of the client's reality.
5. Your competitors have taken cost out of their business, and can do the same work for less
Embedded in the explanation "we lost in price" is an assumption that competitors are cutting their margin to buy work.
But in the current environment where firms are innovating (outsourcing, legal project management, process improvement, artificial intelligence etc), this is a dangerous assumption indeed. It's entirely possible that your competitor won the work at a lower price, but at a higher margin. Are you sure that they aren't re-engineering their business process, and taking out costs but working smarter, not harder?
6. You have allowed yourself to become a victim of 'apples and pears'.
One of the most common grievances we hear is that the firm lost out to a price that could be as much as 50% less than what they submitted. This is followed by grumbles about competing firms doing the work at a loss, buying the work, deceiving the client about what is required etc. Some of this can of course be true where a firm wants to buy its way into a client or a sector.
As often as not however, the firm has itself created or is at least oblivious to a situation that results in the client comparing two different proposals although the client assumes they are the same and the only differentiating aspect is price.
If the client has not provided an extremely detailed scope for all interested firms to price (which is comparatively rare), you have to assume that many if not all of your competitors are likely to submit a price based on the least amount of work required to get the job over the line.
If you do nothing to articulate your proposal in a way that compels the client to compare like with like you will have left yourself very exposed to an (often unfair and incorrect) assertion that you were too expensive.
7. They just didn't like you
We shouldn't lose sight of the fact that we are in a relationship business. Technical ability, reputation, track record, depth and breadth of resources, sector insight are all very well but at the end of the day two people or two groups of people have to feel that they can work together and get on.
We have been told of very good proposals that were in every sense of the word 'winners', that died in a ditch for no other reason than that the firm sent along very junior people to the beauty parade implying that the client wasn't all that important or representatives of the firm that turned up presented as arrogant and entitled.
Most won't express such sentiments to you. "You lost on price" is much more benign and civil.
This list of possible alternative explanations for why you missed out on the work is certainly not exhaustive, merely illustrative. Missing out on work should be regarded as an excellent opportunity to investigate in a structured and in-depth fashion, the real reasons you missed out. They are an opportunity to learn and improve. Einstein is credited with, "the definition of insanity is doing the same thing over and over, expecting different results".
We would add to the definition, "… knee-jerk and ill considered discounting…"
Acknowledgement and thanks to Tristan Forrester and Beaton Research + Consulting; Tristan's Beaton blog post in 2013 was part of the inspiration for this article. Tristan is now head of business development, strategic projects at Herbert Smith Freehill's, Melbourne.