What Happens When Your Vendor Won’t Budge on Price During IT Price Negotiations?

By Chris Vicknair

Director of Client Services, NPI

March 27, 2020

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There is an old saying in business: “Everything is negotiable.” And that’s largely true in enterprise IT price negotiations – but not always.

Every now and again, we come across vendors that defy the norm. They set their pricing, and they will seldom (if ever) veer from that standard. Typically, these vendors utilize some type of tiered approach. Price breaks will apply to higher volumes, but everyone receives the same volume-based discounts.

This hard-coded approach may seem inflexible in a marketplace where pricing and discounts are wildly inconsistent. (Across $7 billion in IT spend analyzed by NPI in 2019, over 75 percent of enterprise IT purchases were overpriced as compared to market.)

But there are ways to negotiate a better deal with vendors that seem unwilling to budge on price.

Case in Point: MathWorks

MathWorks is an example of a vendor that adheres to the “everyone pays the same price” approach, and they offer predefined volume discounts. A leading developer of mathematical computing software for engineers and scientists, MathWorks helps companies meet their machine learning, deep learning and data science requirements. Purchases tend to be large and complex.

The vendor’s pricing methodology follows a consistent process. You pay X amount for this volume. If you hit a higher volume tier, the price moves to Y. No exceptions. In this case, we turn our focus to the business terms of the deal like price increase caps and payment terms.

We also look at licensing models.  MathWorks is offering a desktop licensing model that provides a MatLab and Simulink license (MatLab is necessary to use Simulink), along with a catalog of 30 to 40 toolboxes that work with the MatLab and Simulink licenses. The shift to desktop provides customers with greater flexibility and less concern around compliance issues because each license has access to all titles. Because the vendor doesn’t like to oversell on the number of licenses, they will often allow you to right-size your user counts if you’re underusing what you have purchased. And since their pricing is mostly programmatic, you won’t be penalized for reducing quantities.

Don’t Let Inflexible Pricing Stand in the Way of a Better Deal

MathWorks is trying to be consistent. Frankly, it takes a lot of vendor fortitude to refuse to budge off their price list when they are surrounded by vendors who will negotiate price all day long, and a marketplace that has historically been inconsistent.

But price isn’t the only element of the deal that can be optimized. By focusing on business terms and license optimization, you can have a meaningful impact on the total cost of ownership over the term of your agreement.