OMEGA, The Int. JI of Mgmt Sci., Vol. 3, No. 4, 1975 To Bid or Not to Bid LARS ENGWALL Upwazla University (Received Decembo 1974; 1~ reoise~l form February 1975) This paper discusses the importance of p e ~ e n t customer relations for fu'ms in an environment where bidding takes place. The analysis is first directed toward the bidding resources per order with special reference to the differences in order rate between permanent and non-permanent customers. The importance for bidding firms to keep close track of order rates for different custome~ groups is stressed here. In the s__t~e~___ing analysis the bidding on requests from non-permanent customers is treated as investments in future orders. Here we note the dilemma of firms with low or zero profit margins, which are likely to bid on too many bids, thus incurring higher bidding costs than their more profitable competitors. INTRODUCTION CONSIDERABLE interest has been devoted to the issue of optimal pricing in a bidding situation, and many models have been suggested to provide bidding firms with a procedure for determining the optimal price) A basic model of this kind suggesting that the bidder should select the bid resulting in the maximum expected profit is presented in [6]. Such a model is based on the assumption that there is a negative correlation between an offered price and the probability of obtaining the order. In many situations, however, this assumption seems ques- tionable, since variables other than price influence whether or not a firm obtains the order. An important variable in that context seems to be the uncertainty of the transaction. 2 This is particularly the case when delivery time and quality are of prime importance. In such cases the buyer may be willing to pay a premium in order to reduce uncertainty and to be sure that the job will be done in a desired way within a desired period of time. One way to reduce the uncertainty of the transaction is to stick to a supplier with whom the buyer has been satisfied earlier. In a recent study of a Swedish market for printed products (cf. [4, 5]) it was shown that permanent relations between customers and suppliers arc very common. 3 Thus, a vast majority (98 ~o) of the companies interviewed responded : Cf. [13] for a bibliography concerning bidding models. 2 The uncertainty of the transaction has been stressed in e.g. [9]. 3 Earlier studies of the marketing of steel [l ], Ch. 5] as wel! as pulp and paper [12, pp. 61- 85] indicate similar conditions. 395