"Bidding Wars"

By Charlotte Thomas
Advantages: 2005MAY

To bid or not to bid? That is the question. You don't want to be seen as the one who gives away the store, but believe it or not, bidding is not always a bad thing. In some cases, it actually makes perfect sense.

Blame it on eBay. Or reverse auctions. Or Priceline.com. Whatever the cause, in the last few years, bidding has become an in-your-face reality that many distributors aren't comfortable with. Howard Sperber is one of them. What's to like about a situation in which a long-time client asked him to fill out a 20-page form pitting him against five other vendors competing for the lowest profit margin? The final straw was when the client asked to see Sperber's books to verify that his quote was in line with what the pharmaceutical giant demanded. "I should be so worthy," quips Sperber, president of HM Marketing (asi/217274).

Hackles go up and distributors get testy when the subject of bidding is raised. Unfortunately, they must admit it is here to stay and gaining ground. In fact, it's always been a part of the promotional business to some degree, especially when distributors work with government agencies. "The horse is out of the barn," observes Mark Ziskind, COO of CSE (asi/155807). "It's relatively new to our industry. But then a lot of direct buying is done that way whether you're talking barley or steel, bathrobes or cheese." He notes that even local companies are checking their prices for 200 T-shirts.

Jim Guarnera, executive vice president of James Group Solutions (asi/233180), agrees bidding goes on at every level, from Fortune 100 companies right down to small firms. Distributors bid among suppliers to make sure the playing field is fair. Let's face it, people dicker when buying cars and search for the lowest bids on DVD players.

Hot Topic
That doesn't mean everyone has to like it. Opinions about bidding run hot and hotter. Despite some exposure to bidding in the promotional product industry, "People are freaked," says Ziskind, though he doesn't think they should be. It's where the industry is moving as a result of distributors who are more "vendors vs. true marketing partners," he says. "The industry brought it on itself with people only selling product and not service."

Others like Randy Sinclair, president of RanRoy Printing Company (asi/304803), don't see bidding as particularly threatening. "Maybe the percentage has gone up in the last five years, but it's still a small part of any viable company," he says.

So how did bidding get into the promotional product market? Blame it on the corporate bottom line, which was under heavy scrutiny after the economic downturn a few years ago. There was more pressure to watch pennies so when e-mail and upgraded fax machines made it easier for companies to send out notices to multiple distributors and manage the process, the gates swung open and the horse galloped out.

In the past, corporate marketing and meeting service departments in different divisions of the same company might buy promotional products from eight to 10 different vendors. The bean counters down the hall added up the figures and said from now on purchasing, not marketing, is doing the buying. Trouble is, according to Sperber, purchasing barely has time to buy machine goods and toilet paper. "They buy generically. Purchasing people don't know product, nor do they have time to explore the creative elements."

But if you're the bean counter looking at the bidding through cost-saving glasses, it makes perfect sense. Big companies can strip hundreds of thousands from promotional product costs, as Guarnera points out. Unfortunately, as a result, promotional products are reduced to nuts and bolts, rather than part of a whole branding program.

Addressing The Crowd
Another factor in the growth of bidding is the sheer number of distributors crowding into the promotional marketplace. Sinclair refers to the consequences of the increase as "the natural forest fire of the industry" as distributors jockey for positions based on the lowest price. The markup has gone down, which can hurt the smaller distributors with less credit and less cushion when something goes wrong with an order.

The worst effect of this phenomenon, say distributors, is that bidding makes transactions with clients all about price. The various services distributors offer aren't factored in. "It takes no talent to respond to a bid. All it requires is a sharper pencil than the guy next to you," Sperber says. Bidding minimizes service, reliability, follow-through - all the intangibles that are proven by a good track record. Not only that, clients who put out a bid want distributors to come up with ideas, research products, and spend valuable time to "make the lowest possible amount of money in an unjustified situation," he says.

Alan Lasker, president of National Business Promotions Inc. (asi/280500) cites examples in which clients think they can cut the suggested pricing in his catalogs by as much as 50% and wonder why he doesn't agree. He points out that those distributors with low overhead who are happy to make a small percentage fan the flames. He's had clients argue, "If this person can sell it for this price, why can't you?" Of course they entirely disregard Lasker's staff, who track orders and take care of warehousing and fulfillment.

In a few cases, Lasker found that the bidding process can be bypassed when a good client relationship has been established over multiple transactions, so he's willing to go along with bidding to some extent. But he's also heard from many purchasing agents, particularly from college, government, and credit unions that the lowest bid, not service, is their main objective.

Innovation gets knocked out of the process, say distributors with their own art departments and in-house creative minds. Many purchasing departments expect distributors to offer ideas and advice while submitting a bid, but distributors often refuse. "They'll just shop it around," Lasker warns.

Is It Big Enough?
Complain about bidding all you want, but it's not going away. So what's the best way to deal with it? First off, differentiate which clients or prospects are solely seeking lowest price, and which also factor in services. Lasker will consider bids for large orders at low prices as long as service isn't part of the equation, but he, like other distributors, knows he is walking a tight line on his margin if something doesn't go right. On the plus side, the company might come back to him for his full service once they get to know him. Jonathan Morgan, vice president of RMI Inc. (asi/303583), says it has to be a very good deal for him to deal with the bidding process. He looks at his cash flow and 60-day terms under which clients pay their bills, so most of the time he passes up the bid because it's just not worth it. "You got to roll with the punches and be smarter than the next guy," he says, "Cut your niche and work smart."

But if the bid's big enough and you can buy better, why not? Ziskind will do the occasional large-volume bid. He doesn't mind the bidding situation if the client is bidding out 10,000 caps and he thinks he has a shot at it because he knows how to buy better than the next guy. He uses a beer industry analogy: If the truck's not full, why not put a case of your less expensive beer on the truck at a lower margin if the truck's going to the low bid store anyway?

If it's the core of your business, that's a different story. "We'll do bids for half a million," Ziskind says, "and spend less time at that than doing an order for 200 shirts." His advice is to develop a tried-and-true importing network because sourcing is everything in big bids. "If you can pick up 15 cents on a 200,000-item deal, why not?" he asks, as long as it's high volume and he's able to handle it efficiently. Of course, his vendors for importing have become more proprietary than his client lists.

The Total Package
So bid when it makes sense, but also let that client know you're a true marketing partner vs. just a vendor and they might not shop around next time. "If we dealt only with companies that do bidding, our business would be one person in one room," says Ziskind. His company goes for the total solution for their clients and doesn't build their financial plan and infrastructure around large, one-shot orders, but around creativity and astute product sourcing.

Sinclair also finds that the majority of clients are willing to pay the difference in markup, knowing he will ultimately save them time, trouble, and money.

Guarnera is picky about which clients he works with from the beginning. He lets them know he sells program, not product, and they respond. As a result, some clients let him know that a program they've asked him to consider will not be bid out. "They tell me ‘We get too much from you folks,'" he says.

Lasker goes after the small and medium companies that don't rely entirely on the purchasing department for their promotional product buys. He gets to know the marketing person and after awhile, even if his company is off a penny, they'll go with him because they value his service. He agrees that there are enough end users out there who aren't bidding.

Sperber, likewise, steers clear of the purchasing department and targets those in charge of marketing and promotions. "They're the end users," he says. "Avoid the pencil-pusher purchasing agent." He submits ideas that are creative, unique, and fall within a reasonable budget to the marketing people. If all goes well, marketing says to purchasing, "This is unbiddable because it's an original idea brought to me exclusively and created with our needs in mind. It's not fair to submit this to other vendors when they've done all the legwork." This approach has a lot to do with knowing who you're dealing with and establishing good faith between distributor and end user.

For that reason, Guarnera doesn't ignore purchasing when approaching new customers, but on the other hand he doesn't focus on them. He knows they will only view him as a commodity broker so he doesn't spend much time there and instead tries to find people who have budgets and needs and know what distributors can offer.

Guarnera also sticks to the marketing and sales directors, who tend to be interested in solutions first. He usually encounters little resistance until purchasing gets wind of it and the battles begin. But by then, he has convinced marketing that all the integrated services his firm offers bring value beyond the product. "We've got fulfillment and warehousing capabilities in our facility that the smaller distributor working out of his basement selling caps doesn't," he says.

Be Their Best Bud
Morgan finds that, out of 10 clients who put out bids, one to two are true to the rules of bidding (they give out the full details of the bid and then stick to them). In today's market, the eight others already have their buddies in line to receive the bid, but need to put it out there because of corporate policy. "They say, ‘Hey, if you're my buddy and I like working with you, you have to come in 5% lower so that I can show my vice president that I'm getting low bids," he says.

Morgan works with corporations that know he can make a program happen. Sure, they'll try to lowball him on coffee mugs, but he'll likely ask them if they've thought about who's going to mail the mug. He asks what kind of message they want to send. Have they thought about adding a brochure? What about shipping?

Other clients might think they're only looking for an inexpensive pen and want the lowest price until Morgan points out they are really asking him to take their logo, resize it, place it properly, and make sure the colors are accurate. "There are costs [associated] with that, which we often don't charge. I tell clients, ‘You're getting a pen for a dollar, but look at all the extra services,'" he says.

Savvy distributors are familiar with what products work for any given program. Most clients don't, so Sinclair suggests that distributors become mind readers - giving clients what they want, not what they ask for. They might ask for four colors but a knowledgeable distributor knows that two colors will work just as well. Many purchasing agents bid the same product over and over and aren't even aware that it's outdated or that other alternatives are available. The idea is to become an extension of your client's company, "an unofficial partner who spends their money like it's your own," says Sinclair.

Make Lemonade
While there are those who say there is nothing good about bidding, others work it to their benefit. Guarnera uses reverse auctions to learn things about a client's business point of activity. However he sets strict parameters. He bids on product only and with a predetermined profit basement. In the process, he uncovers a lot of customer information, such as quantities and the quality of the items that are proposed. This information comes in handy for later bids.

Some companies will even tell participating distributors what the winning bid was. For Sperber, knowing that the winner came in one point below him, for instance, is a tidbit of valuable information that, added to other bits and pieces, helps him in future bidding.

When Lasker bids, he makes sure they give him all the information he needs before doing all the work to make the bid. Normally he won't even go in at 5% or even 7%, but he's had purchasing agents call him and ask for help. "They'll call us and say, ‘If you can get to this point, we'd much rather deal with you because if something goes wrong, we know we can get ahold of you,'" he says.

There have been several instances where clients have gone with other distributors and end up calling Lasker because they were unhappy with the product. In one case, it was a lapel pin. "They showed me the samples with the pins they wanted to reorder. I told them the whole process was wrong and came in with four other samples at a lower price than the original," he says.

Morgan analyzes each bid situation to come up with new strategies. He was involved in one bid process with nine other distributors and didn't get the job. But to his surprise, the client shared with him the winner's bid. It turned out to be the third lowest bidder. "It was a difference of $1,200," says Morgan. "I asked him if it was because the winning bid was his buddy or was it the product that made the difference. He told me we lost it because we didn't underscore the product quality."

When Sinclair gets blind bid offers from companies he doesn't recognize, he'll call and ask them how they heard about him and why they approached him with a bid. Their answer, whether they found him in the yellow pages or word of mouth, gives him pertinent information, which he'll then use to get a meeting. Once face to face, he uses the time to differentiate his company from the others. If he can't connect with an actual person, he doesn't bid.

Work Smarter
So, what is the impact of bidding on the promotional market? Though major corporations that hand out most of the bidding notices are starting to run sales meetings and attend conferences again, they are still in money-saving mode. Distributors will see more business coming their way, but now that corporations have found out they can save money through bids, they'll continue to do so.

Distributors will have to be sharp in evaluating product, buying, pricing, selling, and knowing their competition. Distributors who will succeed in the era of bidding will have to buy better and add value. Maybe that's why Guarnera thinks the promotional products industry can only improve as a result. "Bidding makes us work smarter," he says. "At some point, it should raise the level of professionalism."

Charlotte Thomas is a contributing writer for Advantages.

How To Keep Clients From Stealing Your Ideas

It's tough to watch your ideas get tossed to other bidding participants, especially when you put a lot of legwork into them. It happens. Sometimes distributors are on the win side when a well-known client calls to say he's chosen this particular fleece, can the distributor price it out for him. Or, they might have spent the time sourcing that fleece only to see the job go to someone else. Distributors who have built long-time relationships with a client might get a call saying, "We like the product that we've chosen, but we want to work with you." Some companies that realize the value of ideas will put out bids, but give premiums for creativity.

One way to get around the losing side of the fence is to customize the product you're placing in the bidding ring. "If you present a standard T-shirt, there's no way you can stop them," says Jonathan Morgan, vice president of RMI Inc. "But if you've created the artwork, they can't steal the concept."

Jim Guarnera, executive vice president of James Group Solutions, pre-sells clients on the fact that they're not getting a product, but a marketing program with goals and ways to measure effectiveness. If he can get the client to see the value he brings beyond the product, he's pretty sure it won't go out to bid.

Alan Lasker, president of National Business Promotions, solves the problem by telling clients he'll create a total program if he has the opportunity to beat the lowest bid.

Five Ways To Take The Ball Out Of The Bidder's Court

It's easy to fall into the trap of feeling that clients who put out bids are the all-powerful cat and you're the rat running after the cheese that's dangling just out of reach. But that's not necessarily the case. Some distributors know how to shift the game in their favor.

Be stingy with samples. If a client asks Alan Lasker, president of National Business Promotions to provide a sample in a bid situation, he'll assess whether he should invest the time it will take for him to order in samples and sit down with the client to go over the ways to imprint it. "Why should I do the legwork before I know I have the job?" he asks. Often he tells a client to have someone else order the sample, then give him a call.
Consider small orders. Howie Sperber, president of HM Marketing, will bid small orders to acquaint new clients with his company - and his services. His salespeople are trained to treat a client the same, whether it's a big or small job. "The only way you can prove yourself is by doing it. Talk is cheap," he says. His strategy pays off when he catches a client who has been let down by someone else and he's already demonstrated he is reliable.
Ask for specifics. When companies call Jim Guarnera, executive vice president of the James Group Solutions, with requests to bid on a promotional program, he asks for specifics on how he will be evaluated. Take a bid for a program involving a coffee mug, for example. His approach is to get the client to tell him how the mug is being used. What are the client's objectives? He questions whether the mug is the best option from the client's perspective and what other integrated services his company can provide to make that mug more effective in reaching the goal of the client. He might even suggest unique packaging, or a business-reply vehicle, or even propose an inexpensive Starbuck's certificate.
Stick to profit goals. Guarnera goes into a bid situation with a predetermined profit goal and doesn't budge from it. He's seen profit margins shrink when the order hits a snag, so he's factored in his backup of staff and resources. He knows that even if he did get the business on a low-ball bid, he'd lose money.
Work with top suppliers. Know your suppliers and keep on top of changes in the marketplace. A deep knowledge of suppliers not only helps you win bids, but also make more profit. Randy Sinclair, president of RanRoy Printing Company, has a point system to analyze the benefit of each supplier. They look at how quickly the vendor reacts to problems and how they service his orders and questions.