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By Info-Tech Research Group
Reducing costs is often top of mind for many IT professionals. One low pain, high gain way to reduce costs is to negotiate for reduced pricing with IT vendors. However, when IT comes across a particular vendor that seems perfect for the project, the negotiation team might be hesitant to try to achieve the price reductions that are needed.
Info-Tech interviewed 24 IT professionals about their experiences when negotiating for a reduced price with IT vendors. These interviews highlighted several strategies which can be helpful when attempting to negotiate a price reduction with a vendor that is IT’s top choice.
Company X Saved $50,000 on a Contract with Their Top Pick
The Director of IT Contract Management at Company X was able to save $50,000 when renegotiating a contract with an existing vendor with which the organization was already quite satisfied. She achieved these savings by making the vendor aware of its competition through an RFP process.
| Company X’s Situation |
- Company X is a large government organization with roughly 10,000-14,000 total employees and 350 IT employees.
- The Director of IT Contract Management was responsible for renegotiating an existing contract for Web filtering software.
- The contract with the incumbent vendor had been in place for two years, and the IT department was very happy with the vendor’s product and service to date.
- Despite her satisfaction with the incumbent vendor, the Director wanted to achieve a price reduction when renewing the contract.
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| Preparing for the Negotiation |
- To prepare for the negotiation, the Director first spoke to the head of the department that would be using the software in order to gather requirements and gauge the overall satisfaction and success of the product to date.
- She also leveraged information gathered from IT research firms and an RFP process in order to assess other offerings available in the marketplace.
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| Strategies Used |
- The strategy that the she believed contributed most to her success at achieving a price reduction was to go with an RFP even though she was happy with the incumbent vendor.
- She believed that having the incumbent vendor bid along with several new vendors made the incumbent feel that it had to sharpen its pencil in order to renew the contract. She believed that the threat of competition was integral in getting the incumbent vendor to reduce its price.
- She also cited the importance of background research on pricing disparities between vendors in achieving the price reduction.
- She felt that the existing relationship with the vendor was also a big contributor to her success, as it helped her to understand the vendor’s organization, as well as what she would be able to get out of the vendor. The existing relationship also allowed her to be upfront with the vendor about Company X’s pricing needs.
- In essence, she worked with all of the key stakeholders throughout the negotiation process and tried to find the sweet spot where she could achieve both the best price and the best value.
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| Savings Achieved |
- The Director was able to save $50,000 off of her existing two- year, $820,000 Web filtering software contract.
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When describing her approach to the negotiation, the Director of IT Contract Management at Company X commented that:
“We had been using the vendor’s product for a couple of years and it still was the only product that met all our requirements. But rather than just create a contract with the current vendor, we decided to go to RFP for the list requirements, knowing that the incumbent vendor would win because it was the only one that met all the requirements. We just didn’t want to let the vendor know that they owned our business.”
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