How to get tough with your tech vendors

Planning a purchase from a major IT vendor? In this still-tough economy, negotiating pros recommend being aggressive and creative, as well as analyzing your requirements first so that you don't buy more than you need and know where you can compromise.

Here are the top tips from consultants who help customers negotiate pricing, terms, and conditions with vendors such as Cisco Systems, EMC, Hewlett-Packard, IBM, Microsoft, Oracle, and SAP. We've arranged them in three groups:

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Above all, be bold and creative First, remember that vendors need your money and you don't have to blindly accept their terms. This may seem obvious, but reminding yourself of this fact will give you the confidence you need to question assumptions and common practices that favor the vendor. The initial negotiation, before you've agreed to buy and face the "switching costs" of moving to a competitor, is when you have the greatest leverage over a vendor, says Gartner analyst William Snyder.

Hold vendors' feet to the fire on pricing. This begins, of course, with price. "We've let them know that once you get a price, you can't really go back and increase the price substantially or even really minimally," says one EMC customer who asked to remain anonymous. "If they try to hook us in with a teaser price and then jack up the price of future capacity ... it will be detrimental to their future in our organization -- and they know that."

Propose a deal the sales reps will want to support. Learning how sales reps are compensated can help you sweeten a deal to get the rep on your side and win concessions "you wouldn't have gotten if the rep hadn't been really behind the deal," says Duncan Jones, a principal analyst at Forrester Research. That might mean, for example, buying a comparatively low-cost product or service you can actually use to convince the rep to fight for a better price on another part of the deal.

Negotiate with a senior vendor exec. David Blake, CEO of IT sourcing and commercial advisory firm Upper Edge, recommends forming relationships -- and negotiating -- with a senior executive at the vendor. This creates a human bond that helps cut through bureaucracy and encourage cooperation, while showing you want a strategic relationship rather than just a transactional relationship when you need a specific product.

Be persistent. Many vendors "are very good at telling people no immediately," says Blake. "And they're very good at telling people no three or four times. For certain things, you need to understand it's the fifth or sixth time ... when they finally either say yes or at least compromise."

Help the vendor do the right thing. Blake also suggests putting your requests in a win-win context. When asking the vendor to lock in price for several years, he suggests, for example, that you mention that the price guarantee will remove one uncertainty from the budget process the next time you go for approval to buy more products from that vendor.

Focus on terms and conditions, not license price. Although many customers focus mostly on the price of what they're buying today, almost every consultant interviewed by InfoWorld.com said it's more important to negotiate the right terms and conditions for everything from future purchases to transferability of licenses and how maintenance fees are calculated. "There's much more money to be saved in optimizing and licensing properly than in negotiating an additional percentage point or two percentage points" on the license cost, says Daryl Ullman, managing consultant at Emerset.

Make your RFP "buyer-biased" to cut haggling. Timothy Nuckles, a principal in Nuckles Law, a technology law firm specializing in IT procurement, sometimes makes his "buyer-biased" terms and conditions part of the request for proposal (RFP) and, thus, a requirement for a vendor to be considered. This cuts haggling time, he says, because once a vendor has been chosen, there "aren't many terms left to negotiate." His requirements might include forcing the vendor to fix bugs under warranty rather than under an expensive maintenance agreement, or providing refunds on licenses or maintenance for software that takes longer than expected to deploy. Or he might include clauses specifying the prices at which a customer can upgrade licenses if required by an audit, or the refund a customer will receive if it needs fewer licenses in the future.

Make sure your business partners are covered. Consultants say customers are often stymied by whether and when business partners need licenses to access software customers have purchased. Blake says SAP, for example, doesn't always "fully disclose and proactively inform the client" that customers or suppliers must be licensed to access the customer's SAP system, which "is a huge, enormous hidden cost." An SAP spokesman says its contracts address the issue, while a spokesman for EMC, the only other vendor to address this question, says its sales teams work with customers "to avoid this situation and we do not see this as a notable issue."

Reject pricey maintenance plans. A growing number of customers are rejecting high-paid maintenance plans altogether, consultants say. This is especially true for older products that don't need updates or aren't likely to be updated, as well as software that customers can maintain themselves or for which third parties provide better support at lower cost, says Phara McLachlan, CEO of IT management and consulting firm Animus Solutions.

If you do opt for maintenance, Nuckles recommends negotiating maintenance separately from licenses to assure that you get the best price for both. Yet another option: Buying maintenance only if and when you need it, which "puts the onus on the vendor to keep developing meaningful updates," McLachlan says. Some vendors are penalizing customers for dropping maintenance, making it another issue you might want to address in your terms and conditions upfront.

Don't make idle threats. Negotiating hard is one thing; misleading your vendor is another. For example, don't tell Microsoft you're considering a move to open source unless you at least have a transition plan or pilot deployment to show you're serious. "Once Microsoft understands it's a bluff, it will feel much more secure and confident, and be less ready to discount heavily," says Ullman. With its software integrated into enterprise ERP, workflow, management, collaboration, and other systems, Microsoft knows replacing it with an open source alternative will be too complex for many customers, he says.

Know thy vendor and thyself Not every term and condition is as critical for every customer and every vendor, which is why it's so important to understand the vendor, and yourself, before haggling.

Take advantage of vendors' sales priorities. Over the last year, for example, Microsoft has focused on renewals of enterprise maintenance agreements, says Ullman, cutting prices from its original 25 percent per year for servers and 29 percent for applications to a more customary range of 15 to 18 percent. (A Microsoft spokeswoman said the comparison is not "apples to apples" because maintenance offers from various vendors differ.)

Microsoft also "seems to be pushing its BPOS" (Business Productivity Online Standard Suite), says Blake, while "SAP is continuing to push its Business Objects solution," and SAP and IBM are promoting use of IBM's DB2 database with SAP's ERP suite. When vendors are promoting certain products so heavily, they're more apt to be flexible on terms and price.

The art of a long-term commitment. Making a long-term commitment by prioritizing a vendor's products in your architecture can reduce the upfront price, but it also means that vendor will be harder to replace in the future. By linking its products to other widely used enterprise software and by adding new capabilities, Microsoft has managed to make its software harder to replace by customers, and thus boosted its list and street prices despite the downturn, says Ullman.

Many customers buy licenses years before they will use them to get an average 35 percent volume discount, but they end up spending more than the savings on maintenance fees for what is merely shelfware. Knowing your needs upfront helps avoid that mistake, and it lets you sweeten the deal with products or services you can actually use. Be sure to share these details with the procurement staff that negotiates the deal, says McLachlan, so they don't just opt for the upfront discount.

A vendor's culture affects the possible deal. The vendor's culture also affects the bargaining process. Although in the last two years Microsoft has become much more flexible in accommodating buyers' needs, SAP and Oracle "have held their ground," says Nuckles, and IBM and HP "are trying to be more receptive to different ideas about contracting," he says.

Oracle has an aggressive, sales-oriented culture and a large, expensive product set that can get multiple competing salespeople involved in a deal, says Eliot Colon, president of Miro Consulting. Yet smart customers can get a better deal from Oracle than other vendors because it is more flexible on terms such as limited-use licenses for peak periods, he says. An Oracle consulting partner who declined to be identified said Oracle discounts applications up to 65 percent off list and its database up to 35 percent, but it does not discount support. (Oracle declined comment.)

The anonymous EMC customer said EMC has done much in the last few years to ditch the "used car salesman" approach and has "generally removed price as a reason to look elsewhere." EMC understands that "customers are looking for value in their IT investments, and we work with them to ensure that they purchase the right products to meet their needs," a spokesman says.

Some vendors are more consistent than others in price and license terms, which helps determine how flexible a sales rep can be. SAP has the most defined and well-enforced policies, followed by Microsoft and Oracle, says Ullman.

Tricks the vendor might try to pull on you You may be looking for a better deal because of the tough economy -- but so are the vendors who are trying to preserve income and even grow despite the tough times. Many will play hardball as well, and a few will go beyond tough negotiations to underhanded techniques. Be sure to ask these key questions to avoid both inadvertent and intentional unpleasant surprises.

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