His point: you and your village may starve waiting for your to bring home the big game.
At the time of this writing, South Korea based Hanjin Shipping had filed for bankruptcy protection. It transports about 8 percent of the Trans-Pacific trade volume. Virtually all goods they were in possession of stopped moving because people were afraid they wouldn’t get paid to handle the merchandise. Several U.S. retailers use Hanjin as their main or exclusive shipping company. The three biggest are well known for their low prices and I'm reasonably sure the three negotiated “great” deals with the shipper. That might explain the bankruptcy!
In our everyday business in the promotional industry we are bedazzled by the lure of the “Big Deals” – the university putting out a million dollar RFP or the insurance company that wants a program for 2,000 independent agents, etc. But time after time we see that putting too many eggs in one low profit basket brings trouble.
I have always described RFPs and other formal quoting systems as an organized enterprise designed to deprive you of a reasonable profit. But if you can’t be dissuaded from big game hunting, here are some tips and warnings that might help track down the beast.
1) Always ask how many were invited to quote (propose). Three, five, even a dozen - not too bad. 150, 200 - don’t waste your time. There are plenty of distributors who will quote prices lower than necessary to actually make a profit and you don’t want to be one of them!
2) Ask about line item vs. full program. Will they pick and choose single items with the lowest price from each quote or does the best overall bid take the program. Most RFPs are line item and if you “win” any business it will be only items with little or no profit.
3) Time management is very important. What will be required of you if your win the business? Will you have to make reports, deliver samples, produce virtuals, issue acknowledgments, attend meetings, etc.? Measure that expense of time against building and servicing your existing business and see if the profits (not volume) generated make sense.
4) Is there a commitment to purchase a minimum from you? Once upon a time a winning bid turned into a Purchase Order! Not so today. Most RFPs state that no purchase is guaranteed or any purchase for that matter. Be most concerned when many different quantities for the same item are requested to be quoted.
5) Be aware of cancellation policies you have to agree to. Your policies don’t matter once you agree to the terms of a RFP. I have seen terms that offer no (zero) cancellation fees for any order not yet produced leaving you on the hook for any work the vendor will be charging you for (setup, proofs, etc.)
6) Pay particular attention to product liability, insurance, auditing, social responsibility and delivery penalties. The RFP will almost always expect you to be responsible for things you have no control over. Be sure you are willing to take on the risk.
7) Don’t be afraid to ask for changes in the agreement that covers the RFP. Many agreements are “boiler plate” language that is intended to cover transactions that may be much different from purchasing promotional advertising materials. If there is something that bothers you or does not belong in the agreement, ask for it to be removed.
8) Remember that quotes, RFPs and bids are legal documents – agreements – contracts! If you don’t understand every word, get help from someone that does. The larger the potential deal is, the bigger the potential loss will be if you get trapped in a bad deal.
9) Licensing is another important consideration. Universities, sports franchises, organizations and corporations all have restrictions on how their names, trademarks, colors and other representations of the entity can be reproduced. Licensing through a third party may be necessary for you to actually produce goods if you win the bid. There are costs involved that can be substantial. From initial registration and application fees to royalty payments on all billing, you need to know exactly what the impact will be on the quote your give.
10) Leave yourself an out! What is sometimes called a Force Majeure (French for Superior Force) is a provision in the agreement that should protect both you and the client and allows either of you (or both) to suspend or terminate the agreement. It should spell out the major circumstances that might include natural disasters, war, riot, strikes and lockouts, material shortages, legal actions, etc. You may want to add an economic trigger that provides for extraordinary increases in raw materials or shipping. Many agreements will have such a provision but be sure that it protects you and not just the client.
My own big game hunting analogy is the claw machine in the arcade. The largest stuffed animal is always the hardest to grab and win, but after spending far more than it is worth to finally free it from captivity, it never is quite as nice as it looked behind the glass!
Gregg Emmer is chief marketing officer and vice president at Kaeser & Blair, Inc. He has more than 40 years experience in marketing and the promotional specialty advertising industry. His outside consultancy provides marketing, public relations and business planning consulting to a wide range of other businesses and has been a useful knowledge base for K&B Dealers. Contact Gregg at gemmer@kaeser-blair.com.