IT Sourcing 101: Why is Pricing So Opaque?

By Matt West

Director of Telecommunication Services, NPI

May 20, 2015

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IT and telecom suppliers like to keep the details behind pricing as opaque as possible. The more they can bundle, the less the customer can compare pricing to competitors. That helps the vendor at selection time, but it’s even more beneficial down the road.

Take the following example – an actual quote. It includes 20,000 of one type of license and 20,000 of another type of license. The total volume price is $219,891, but the vendor offers it for $150,000 if purchased in February. Included in the February price is the first 12 months of annual maintenance (at 20% of net purchase price).

What happens if, next year, the customer wants to buy 5,000 additional licenses of just one type? What is the price? The problem with the quote is that it does not provide any details for the license cost and thus grants all leverage to the supplier to price the licenses in the future.

The best practice in getting quotes from suppliers is to ask them to submit a quote in a very specific format that includes: Item P/N or SKU, Description, Quantity, List Price, Discount, Net Price, Extended Price.

This should be obtained on a line-by-line basis – no summarizing, no bundling. This way, if a customer buys additional of just one type of license, or if they want to discontinue using one type of license, they know the unit cost and previous discount applied.

Given the complexity of today’s sourcing environment, there are many steps to optimizing IT and telecom spend. Some are difficult, but some are rooted in the basics. Taking steps early in the sourcing event to achieve pricing visibility goes a long way toward achieving optimal savings over the lifetime of the IT/telecom investment.