Three Words to Remember: Price. Isn’t. Everything.

- March 6, 2013 2:29 PM
Categories: Commentary | Tags: , , , , ,

Spend Matters welcomes another guest post from Jeff Muscarella of NPI, a spend management consultancy focused on eliminating overspending on  IT, telecom and shipping.

“Price isn’t everything.” These are three of the most important words to remember in IT purchasing. While you need to watch some IT vendors like a hawk when it comes to pricing disparity to make sure you are getting fair market value, this isn’t the case for all. There are some vendors that offer consistent and fair pricing. You can move the needle on pricing through skillful negotiations and price benchmarking, but the pricing concessions these vendors make are typically minor.

That said, don’t mistake fair or consistent pricing for a fair deal. In fact, a deal that’s fairly priced can be a wolf in sheep’s clothing. Many of those vendors that are consistent and transparent in pricing are highly trained to extract more of their customer’s budget in ways that are less obvious but potentially quite costly. Here are a few things to look out for:

  • Dynamic contract language. Support and licensing definitions aren’t static. Changes in licensing models and product features can drive changes in costs, and customers bear the responsibility for being fully up to date on interpretation and impact.
  • “Scoping down” of licensing rights. Customers must gain absolute clarity not only on basic licensing definitions and policies, but know the answers to key questions. Can the license be deployed on different platforms? What constitutes third-party access/indirect access? Does the license cover global deployment? Vendors often insert “subtle” licensing constraints that may at first seem innocuous but position the customer for increased spending over the term of their contract.
  • Penalizing customers who choose not to upgrade. Customers who forego upgrades may be subject to higher support fees. These cost increases should be considered as customers evaluate their long-term product use strategy.
  • Promoting overbuying. Enterprise and unlimited licensing agreements are not for everyone. They’re often an effective vehicle for overbuying and paying for more licenses and products than are actually needed. Customers should carefully weigh costs against the contract flexibility that their business requires. The price for changing these agreements to reflect actual license counts and product usage can be devastatingly high.

 

Pricing is only one part of the battle for a fair deal from IT vendors. As enterprises pressure IT vendors for more transparent pricing, vendors are using contract complexity and dynamic interpretation of terms to extract more revenue over the lifetime of their customer relationships.

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