Vendor negotiation leverage: what you need to know

Common points of leverage across all vendors

With vendors getting more aggressive in their contract tricks, whilst remembering that these providers are also likely to have far more experienced negotiation and legal teams at their disposal, what can companies do to claw back somewhat of an advantage? Bona outlined a number of key areas of leverage that are common across all four vendors (advantages specific to each vendor will be provided in more detail below).

• Competition: although we have already said that competition may not be that much of an advantage given the switching costs, it could still play a role. For example, some companies are actually starting to calculate the switching costs, according to Gartner, and are writing them off over a longer of time. Also, organisations are beginning to look at competitors that offer the same capabilities, but with alternative delivery models, such as service providers, cloud providers, third-party support providers, and open source providers. These companies tend to have lower margin expectations (around 15%), and as a result can offer a lower price. These factors could be used as bargaining tools when approaching a negotiation.

 

advertisement

 

• Buy newer strategic products: Look at products that the vendor is talking up to its investors and to analysts, products that it hopes will keep it innovative within the market. Bona says: “If you are buying these, the sales force tends to be more heavily compensated to sell them, so companies often get additional discounts or concessions.” Examples of these include SAP’s HANA and Microsoft’s Office365.

• Understand pricing tactics: Gartner details that not all vendors have the same pricing model. For example, not all vendors have global pricing. SAP, for instance, has lower list prices in Europe, Microsoft in the US. If you own more than 50% of a subsidiary company in one these regions you could go and buy for a lower list price in that region (or at least threaten to do so for a discount).

Although these common points of leverage could be useful, each vendor has its own unique approach to negotiations and has its own problems that it is trying to ease with new deals. As a result, Bona also outlined a number of useful tips Gartner has formed, which are specific to each vendor.