Fee Ploy Backfires in Supplier's Face

FRAMINGHAM (07/24/2000) - During recent negotiations for a lower rate with a professional services supplier, a customer faced this ploy: The supplier said, "If we lower our fee, we can't give you our best consultants." This immediately conjured up all kinds of thoughts in the customer's mind. He responded, "How much are your worst consultants? What about your mediocre consultants? What kind of deal can we get on them? Can I have a combo platter? Some of your best with a few mediocre ones?" The questions changed the dynamics of the discussion and pointed out how absurd the supplier's statement was. It also told the supplier that the customer wasn't about to fall for this line.

The resulting laughter set the stage for serious negotiations on the real issues. (Accepting the explanation would have allowed the supplier to maximize its profits on the customer's business.)What do you do in a case like this? First, remind the supplier that you want the services of qualified consultants, not necessarily the most expensive.

Then, tell the supplier that you're testing the marketplace for skills and rates. Finally, stress that the rate you agree to should decrease as the business you do with the supplier increases.

These reminders should refocus the supplier's attention on winning the business. If the supplier continues to balk, then it's time to talk to another supplier because this one is interested only in maximizing profits, not helping you apply the most cost-effective resources for a particular job.

Then, re-emphasize the skill sets you're interested in obtaining (such as project management, development, database administration), the number of such skilled people you'll need and when you'll need them. Discussing the skills in detail on a line-item basis by fully detailing your expectations for a given project, function or task will shift the focus to the specific skills required.

Individual rates can then be discussed because the skill-set differences for your set of expectations have been identified, and different skills should carry different prices.

One Size Fits All

This approach counters a "one size fits all at the highest rate" pricing strategy that many suppliers impose. If you're negotiating with a niche provider that has only one set of skills, this strategy may be more difficult to use because you're negotiating in an area with less competition.

But it's worth the time toexplore and probe. Even within a niche provider, there is various experience. It can be argued that less experience justifies lower rates. But don't be oversold. Remember, you don't get what you don'task for!

Mail Bag

Spyros Kosmetatos, IT director at Aircond Corp. in Smyrna, Ga., wrote in about my earlier column, "Customer's Silence Yields Better Deal." The column was about how growing dependence on a supplier, its ownership of technology assets, software licensing and such helps it leverage a better deal for itself.

He asks: "Isn't this exactly what the ASP industry is attempting to do to us through outsourcing everything to them? At what point (holding all the cards, connectivity, support, software licensing, hardware costs, staff) do they then feel strong enough to start dictating the terms?

"What is the start-up time and cost in producing hardware, software, human resources and the existing infrastructure to bring services back in-house after a falling out with an ASP? For most companies, this is a one-way migration, and they would just have to suck it up and pay what the ASPs will demand.

"What are we truly doing to ourselves in adapting this business model for our IT services?"

Well, Spyros, you've got it! The vendors' mantra for their salesand account managers is: account control, account control, account control. Thanksso much for your excellent observation. There's more need now in outsourcing-type transactions to ensure that we negotiate a rational "path back" into the contract.

This is easier said than done, as every facet of the deal is touched by the unwinding process needed to get the function or application back in-house and intact. I've worked with "stuck" outsourcing customers who had no path back - and it's not pretty.

Joe Auer is president of International Computer Negotiations Inc.

(www.dobetterdeals. com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High-Tech Acquisition Professionals. Contact him at joea@dobetterdeals.com.

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