As price becomes the differentiating factor in more and more project wins, Duncan Proctor looks at what integrators and distributors can do to stop the tendering process becoming a price comparison exercise at the expense of value.
In Installation’s regular surveys of countries’ installed AV communities, a common grievance expressed is that customers often think primarily of the cost of projects rather than assessing the value they are getting.
This creates issues with price undercutting and can distort the market with some integrators and distributors believing they have to offer the lowest price option to win a project, which in the long run brings down standards and often results in the system installed being unable to fulfil the brief.
Competitive pricing and cutting of margins in the pursuit of business is nothing new to the AV industry, but lowering the price of a solution does not correlate to better value to the customer. How does the industry guard against this approach becoming pervasive?
“Pricing is and always will be an issue in our marketplace. Cutting margins to win business per se, is all part of the free market economy AV integrators work in and a challenge that those of us who provide high quality, value-rich services to our customers have to face on a regular basis,” says Peter Sutton, managing director at Pure AV.
‘Value for money’ can be confused with ‘race to the bottom’
John Ginty, Sahara
This problem is exacerbated when combined with a flawed tender process that does not allow for bidding companies to demonstrate the extra value they can offer. “This is most often the case when procurement decisions are driven by remote purchasing departments perhaps at main contractor level or taken without consideration of the end-user experience or input of the teams on the ground and who will ultimately work alongside the tendering parties on the delivery of the project,” states Sutton.
“The whole process of AV project tendering is a minefield,” confirms Colin Etchells, director and group technical manager at Saville. “Unfortunately, this can be made worse by tenders, which are clearly issued as price comparison exercises to test the market and others where the procurement process dictates that there should be a minimum number of returns to assess before the contract is awarded. Then there are those that are issued as part of a bigger contract, namely construction projects, where the tender is a small part of an overall proposal.”
John Ginty, general sales manager for Sahara, is in agreement: “‘Value for money’ can be confused with ‘race to the bottom’; everyone needs to ensure they attain value for money when purchasing, but push it too low and you compromise. When undercutting, something has to give to ensure companies are profitable enough to survive. Focusing on price and price alone can lead to frustration post-purchase. Assumptions are made when just comparing on price that all quotes will deliver the same outcome; the truth is this is not generally the case.”
This raises the question �� what can integrators and distributors do when a competitor quotes a lower price for the same service?
“Saville AV made the decision a long time ago that we would employ our own technical staff and ensure they are trained and supported to the highest standard,” comments Etchells. “We may not be successful in all the tenders we apply for, but clients can be confident in the knowledge that they are procuring a high-quality, professional service.
“There have been instances where other AV integrators have used unskilled labour from agencies in an attempt to secure business through discounted pricing. While this may be successful with the win, there are numerous cases where clients have had really bad experiences and as a result, the whole industry’s reputation has been tarnished.”
We encourage customers to look beyond the final price and conduct enough due diligence
Peter Sutton, Pure AV
For Pure AV, Sutton says that back up and support is provided as part of an all-encompassing service. “We encourage customers to look beyond the final price and conduct enough due diligence in all bidding companies to know that the service they will be getting will sustain them through from project inception through to handover and ongoing support. Past experience and references from similar customers will aid them in their choice and hopefully, drive their purchasing decisions towards a ‘reputable and capable’ integrator.”
Sahara takes a similar approach to Saville, as Ginty explains: “We invest heavily in providing training and developing product knowledge throughout the team. We work very hard with our vendors to ensure all staff have the knowledge or access to someone who does. This enables us to build strong relationships with our customers and their customer, they trust us to give them the expert advice needed to make an informed decision on their purchases and understand that to survive we need to be competitive.”
The relationship an integrator maintains with manufacturers and distributors is also a key factor, as Sutton details: “We have always had strong relationships in this area and continue to work proactively with these partners. These relationships are an essential part of ensuring success in the project bid process as (rightly or wrongly) there is potential for the pricing strategy at manufacturer and distributor level to influence the capability of the bidding party to compete. Good communication at this level also ensures we can add value to customers with access to early information of new product developments and reliable lead-time management.”
In order to demonstrate the value the customer is getting there are additional services integrators can offer on top of what is expected.
“We have a well-developed sales and product manager team, who supported by our vendors and experienced purchasing/admin team enabling us to support customers with pricing and pre-sales support providing the information, support and pricing required for customers to complete tenders that are competitive, correct and delivered to deadlines,” comments Ginty. “Post tender our support team of technical and training professionals give our customers the confidence to ensure that not only is their customer’s budget being met, but the user’s expectations are also realised.”
An important element of this is getting to know the client and, as Sutton states, bringing “the mix of real life experience and technical know-how together to provide solutions that deliver long-term benefit; rather than just putting forward a commercially unsustainable price to win a tender.” He continues that an integrator has to have the knowledge and experience of not just the individual piece of equipment but how to bring the technology together in the most effective way. “At Pure AV we devote a lot of time in looking at and investigating the latest technology, testing not just performance of the output but also the ability to control it and how it integrates with other equipment. This will often reveal a more effective way to achieve a desired outcome and help the end-user to avoid costly mistakes or unnecessary expenditure.”
In terms of the sectors where undercutting has the biggest effect, education is notorious, as Ginty explains: “The education sector is under great pressure, they have high demand and limited budget, this understandably creates a clouded view between ‘value for money’ and ‘cheapest price’. This clouded view means sometimes product is compromised for price. This I agree does enable more product to be purchased, but if that product doesn’t meet the current demands, it is unlikely to meet future demands.
“If the establishment can’t afford all the tech they want at the same time, we advise it would be better to stage the upgrade or investigate other methods of financing to ensure they get exactly what they need.”
As Etchells observes, the university and FE sectors generate the largest number of tenders each year, and to complicate things further for prospective integrators and distributors: “Most institutions will have one or two preferred suppliers and the depth of that client relationship is paramount to winning most of the tenders.
“It is difficult to place valuable business in the hands of an untried company who perhaps have no experience of working with that institution. While it is understandable that an institution cannot run the risk of the install going wrong, it does mean that the tender process becomes flawed as the likely winning bid can easily be predicted. There are plenty of examples in this sector of failed/flawed or late installations as companies bid for projects that they’d like to win, only to find that they have overcommitted and are most likely going to be unable to successfully install in the given time period. An experienced systems integrator being asked to bid for the same project will do the due diligence and then probably ‘no bid’ as the reality of being successful against an incumbent are slight.”
Etchells elaborates on the approach Saville adopts: “Our policy is to work with a limited number of institutions in this sector using a completely different model. As a result, we can plan and map projects over an extended period of time and schedule resources such that a client is confident from the outset that the installation will happen successfully within the specified timeframe.”
However, as last year showed, the consequences can be severe for an integrator getting the tendering process wrong and cutting its margins too drastically in the pursuit of business.
“2017 saw some untenable under-pricing from some AV companies on projects and this has recently resulted in at least one AV integrator going into administration as a result,” warns Etchells. “This type of aggressive and unsustainable activity doesn’t do our industry any favours in the longer term and may well cause this sector bigger issues moving forward. Short-term gain leads to long-term pain for all concerned if this is allowed to continue unchecked.”