Price low to win a tender? Think again!

Mythbuster – Does the lowest bid always win? Part 2

We busted the myth that tenders are always awarded to the lowest bid in a previous post (Mythbusters – Does the lowest bid always win the tender?).

While we uncovered some interesting points, we ended up asking even more questions than when we first started. In this post, we do a deeper dive into the data to try and answer the question: do tenders that are awarded to the lowest and highest bidders tend to be from certain industries?

Method

In the previous post, we measured the average percentages of 4 groups of tenders across all industries:

  1. Tenders with only 1 bid: we do not count single bid tenders towards the statistic of tenders being awarded to the lowest (or highest bid).
  2. Tenders with 1 or more winners (lowest bid won): this group contains all tenders in which the lowest bid won. This includes tenders in which multiple bids were awarded, and one of them was the lowest bid.
  3. Tenders with 1 or more winners (highest bid won): this group contains all tenders in which the highest bid won. This includes tenders in which multiple bids were awarded, and one of them was the highest bid.
  4. Tenders where neither highest nor lowest bid won: this group contains all tenders in which neither the highest nor lowest bid won.

For this post, we segregated each tender into 1 industry before repeating the same analysis at an industry level. We currently categorise tenders (and companies) into 1 of 50 different industries. Let’s see what the results look like at this deeper level.

Results

Tenders Awarded to Lowest Bid

The industries with the largest percentage of tenders being awarded to the lowest bids are:

  1. Professional engineering services
  2. Pest control services
  3. Aircon and ventilation

These were also the industries in which the lowest percentage of tenders was awarded to the highest bid. While the average across all industries is about 39%, the average for these 3 industries is more than 60%, indicating a relatively stronger sensitivity to price by the buyers. It would appear that in these industries, the ability to differentiate, or perhaps the willingness of the buyers to recognize differentiation, is small.

Now let’s take a look at the tenders that are awarded to the highest bid.

Tenders Awarded to Highest Bid

The industries with the largest percentage of tenders being awarded to the highest bids are:

  1. Musical supplies
  2. Insurance
  3. Transport services

While the average across the board is around 10%, the average within each of these industries is north of 15%. It is a smaller spread compared to the statistics for the lowest bid analysis, however it does suggest that there are some industries in which buyers could have more manoeuvring space as far as pricing is concerned. This set of results is admittedly surprising. It is not immediately obvious why any of these three industries would allow this to occur.

Conclusion

Understanding the context in which you compete is paramount to success. If you are competing in one of the industries that are most likely to award to the lowest tenderer, are you cost competitive enough? Do you need to structure your business to manage your costs better to allow for more aggressive pricing? In the first place, do you know how your pricing generally compares to your competitors?

Conversely, if you are competing in an industry in which tenders are more likely to be awarded to the highest bidder, are you leaving money on the table? Do you know how your pricing generally compares to your competitors?
At TenderBoard, we have developed tools that allow us to analyse a company’s tendering performance, as well as to understand the context within which it competes, including how its pricing compares with competitors over the long run.

Are there questions you have not been able to answer due to a lack of data? What would be interesting to you? Do let us know by dropping a note in the comments below or over email via our contact page.

Leave a Reply

Your email address will not be published. Required fields are marked *