Everest Group recently conducted an interesting engagement with a large service provider organization that displays the opposite of the phrase “caveat emptor”…caveat venditor, or “seller beware.”
The provider was trying to extend its five-year-old deal with its client. The buyer had retained a consulting firm to advise on the competitiveness of the proposed pricing. Based on a quick diagnostic assessment, the consulting firm suggested that the as-is pricing was above the market. The service provider, faced with the threat of pulling down the price to avoid the deal going into a competitive bid process, asked for opinion on the pricing. Based on a detailed analysis of the in-scope services, we found that the pricing – which was prima-facie 9-12 percent above the market – was actually 2-3 percent lower than market after factoring in value-added services and other deal-specific nuances.
We’ve seen multiple such examples recently. Buyers are churning their vendor portfolios much more than in the past, and aren’t afraid to pressure their service providers for reduced pricing with the underlying message that they should be prepared for competitive re-bidding process. Deal pursuit life cycles have also become longer, and the competitive intensity has been on the rise consistently.
In this environment, it becomes paramount that service providers get their solution and pricing correct on the first go. And it can be to their advantage to obtain advisory support during live deal negotiations. However, there is a big caveat here: leveraging off-the-shelf benchmarks is unlikely to add any competitive advantage to providers’ bids. The benchmarks must be very contextualized, bearing in mind the buyer environment, the vertical industry, the volumes in scope, the deal terms, the delivery locations, the provider’s solution, etc. This will not only enable development of winning bids, but also ensure that the provider doesn’t leave money on the table.