Are Competitive Pitches a Lose-Lose?

Competitive pitches are the go-to for assigning agency responsibilities. As those responsibilities change, these reviews could be hurting clients and agencies as much as they help. What can be done?

Source: Ghostbusters.com and Giphy.com

We all know that feeling. The email arrives. You open the PDF. You take it all in. And you rejoice. Like the intrepid assistant Janine Melnitz, who answers the Ghostbusters’ very first call, you feel like jumping up and yelling, “we got one!”

Getting an RFP feels like this. Inspiring an almost giddy optimism, RFPs motivate teams with the prospect of new work, new opportunities, and, of course, new dollars. It’s not surprising: most companies in the professional services sector assume they’ll receive (and win) a number of lucrative RFPs in planning their revenue projections for a given fiscal year.

Nevertheless, as reality sets in, most companies set the probability of winning a new, inbound RFP incredibly low: even as low as 5–10% in the ad world. There are just too many factors that enter into the process: the number of respondents, capabilities, limited information, luck, relationships, incumbents — the list goes on and on.

And yet, we start investing heavily against those slim probabilities, deploying our best (and most expensive!) talent to put together a winning response with the hope that the return will far outweigh the cost.

On the surface, there’s nothing wrong with this. A reasonable return for a reasonable investment is the hallmark of a healthy business.

But as competition, complexity and technology have increased exponentially, the investment and risk have become too high to justify the plummeting corresponding return.

To help find some solutions, we need to get into what’s wrong with this tried-and-true model.

What’s Wrong With Competitive RFPs?

For vendors (a term most agencies despise as a kind of pejorative), the competitive RFP process feels stacked against them:

• It is expensive. Many RFPs ask not only for descriptions and case studies that demonstrate capability, but also for a fully-baked, customized, proposed solution and, in adland, “the big idea.” We call this “spec creative,” and it is tantamount to giving away your IP for free. This can cost tens to hundreds of thousands of dollars. Frequently, that cost is difficult or impossible to recoup.
• It doesn’t pay off. Competitive RFPs were once the tool used to select a partner for a long-term relationship. In the advertising world, these were the “AORs” or “Agencies of Record,” and the relationship typically lasted 5–10 years, with some lasting decades — certainly enough time to recoup new business investments. But that has changed. Both the tenure and scope of these relationships no longer measure up. According to the 4A’s, the preeminent professional association for the advertising industry, the average tenure of a new brand-agency relationship is thought to be around 2.5 years, and that study was done in 2013. For reference, it was 7.5 years in 1984. Further, many relationships are now “project-based,” meaning the duration lasts for a single task or campaign. So when full competitive RFPs are used for such brief projects with small budgets, the return on the pitch investment just doesn’t exist. Sure, a project could be the “foot in the door” a vendor needs, but, due to aggressive procurement practices, rate negotiations and terms tend to limit the profitability of future repeat business as well.
• It siphons talent from paying clients. Most companies cannot maintain a dedicated pitch team, sales engineering team, or sales solutions team — doing so would create crushing overhead. Most do have a business development function that “quarterbacks” RFPs, and, increasingly, generates leads. But they rely on business-aligned experts through either formal or informal processes to create responses. These resources are typically paid for by existing clients, and redirecting their effort to RFPs creates delivery problems for the company.
• It is risky. RFP responses are based on a house of cards of assumptions. Clients provide what information they can, but do not want to surrender valuable IP or spend more time than needed on potential vendors they may not ultimately hire. And so, RFP participants are required to fill in the gaps — sometimes even commissioning expensive first-party research. Less scrupulous vendors use IP from existing or past clients. Given the usual time crunch associated with these reviews (I’ve personally seen response windows go from around 2–3 months to 2–3 weeks over the last ten years), the accuracy and fidelity of this research is flawed at best. Further, most companies work with networked partners these days — whether that’s supply chain, third-party talent, technology platforms, media partners, production partners, even building management providers. Integrating and coordinating responses from this network is a herculean task that introduces a huge potential for inaccuracy — not to mention these partners are all helping the vendor’s bid with the hope of winning, too. And so vendors deliver RFP responses full of thinking and ideas that more likely resemble shots-in-the-dark that could blow up in both the vendor’s and clients’ faces if selected, rather than well-considered solutions.
• It creates false promises. Let’s be honest: most vendors are forced into accepting deals they cannot meet in order to be competitive within the industry: price, rates, payment terms, timelines, capabilities, exclusivity, you name it — vendors are likely to agree to almost anything in order to close the sale, especially if they have already put significant investment against it. Then, when they can’t deliver a few months into the project, it strains the relationship.

But RFPs Are Great for Clients, Right?

One could argue that competitive RFPs are a necessity for clients. How else can they know what they can get for their budgets or determine market price of what they’re asking for? I’d argue that it does make sense to have an intense review process for a project with an appropriately large budget — but these days, when budgets are fragmented and, on the whole, much smaller, is it possible competitive RFPs hurt the client just as much as they do the vendor?

I think so. In fact, each of the factors that make competitive RFPs tough for vendors actually impact the client as well.

• Expense. Although clients usually don’t look at pitches as “free work,” they do frequently acknowledge that it is a pretty hefty expense for vendors; most RFPs indicate the client is not liable for this cost. But it isn’t a good assumption that vendors view pitch costs as “sunk costs.” Because the vendor has made such an investment — and because they have put their full energy into convincing both themselves and the client that their proposed solution is the right one — they have a vested interest in making sure it gets implemented as closely to how it was pitched as possible. And so vendors wind up treating the pitch work as if it were actual work product, even if it was highly “speculative.” For clients, this means their new partner isn’t motivated to innovate or iterate, and is instead in “execution mode” on day one. Further, any intelligence or updates not shared during the pitch winds up being disregarded or handled as an expensive change. This sets up the client for disappointment.
• Talent. Many creatives in advertising refer to RFPs as “their second job,” their first being working on paying clients’ assignments. Best case, talent is spread too thin doing regular work as well as RFP work and delivers sub-par work for clients. Worst case, talent burns out and leaves the firm. Either way, the client does not receive the quality they came to expect during the RFP. Freelancers or contractors are frequently employed to help alleviate capacity issues, but most agencies consider their talent to be their “secret sauce,” and so, freelancers are sometimes assigned to paying clients’ accounts during pitches. This, too, hurts the client.
• Risk. The assumptions used to deliver an RFP response almost never turn out to be 100% accurate. The result is a complicated back and forth of “but you said so.” This creates an adversarial relationship from day one instead of a partnership that is needed for successful collaboration..
• False Promises. The client chooses a vendor, and champions them across their organization — only to realize a few weeks or months into the project, that the vendor is actually failing because they promised something that could not be delivered under the pressure of competition. This undermines the client’s credibility, and results in needing to “save” — or fire — the vendor, ironically kicking off another RFP process.

Is there a better way?

Clients are in a tough spot, for sure. Finding partners that can be trusted to deliver the value needed is hard to do, particularly when budgets are large and problems are complex. Here are some practices I’ve seen that prioritize efficiency and transparency for vendors, while still giving clients the intelligence and information they need to make an informed selection:

• “Vendor Day” or “Vendor Fair.” Host a one- or two-day summit with all candidate vendors. Provide a lightning-round style presentation agenda, where each vendor presents their capabilities and differentiators, and shows how they approach problems. While they aren’t presenting, have them set up an “exhibit” in a trade fair format, and allow client stakeholders time throughout the day to network with key talent from each of the vendors. Follow up with rate card or pricing discussions. This model does a few things. For vendors with a clear proposition, there isn’t a disproportionate amount of work to do in preparation, as they’ll have their story ready to go. The Vendor Fair format provides an opportunity for multiple client stakeholders to assess fit, build rapport and generally eke out whether they’d “like” to work with a vendor. This is still competitive, but the parameters are tight and transparent, it’s low cost (even clients save some time with fewer pitch meetings), and, most importantly, no one is setting false expectations or making assumptions.
• Project Rosters. Through RFIs (the more generic, less costly cousin of the RFP), a client can find a small handful of potential vendors. Then, over the course of a quarter, assign projects to these vendors. Pay them equitably, and stress the importance of delivery. Be transparent and support them with information and access. Develop and share a scorecard utilizing KPIs that reflect the client stakeholders’ prioritized selection criteria. At the end of the projects, a client will have an accurate picture of each vendor, and a strong sense of who they want to work with on an expanded or continuing basis. Sell through to management will be easier, as clients can hold up those successes and scorecards as proof of the partnership. Further, clients will have concrete learnings about vendors they can leverage in future negotiations. Clients will also have a deep bench of backup vendors ready to be deployed should something go wrong or for extra capacity. This process is more laborious for the client, and possibly more expensive. However, it will ensure a better fit than would a “speculative” RFP approach.

No matter what process a client uses, it is crucial to expose the real, accurate project budget up front. Transparency allows vendors to truly make a good decision whether to invest in the process or not, and will provide clients with real, low-risk commitments to deliver. While of course this will not result in a solution that is priced lower than a client’s budget, it will “de-risk” the spend, which, in many organizations, is more valuable to management.

Having participated in countless competitive RFPs for a wide range of clients, I understand the need for this process, especially as clients feel the pressure to perform. But as the business landscape continues to change and become more complex, and as budgets become tighter, it makes sense for vendors and clients to look at new ways to complete the new business mating dance.

What interesting ways have you seen clients review vendors? What do you think about competitive RFPs? Leave a comment or email me at kk4iny@gmail.com.