When Vendors Outsmart Themselves

By Dan Elam posted 06-11-2010 08:43


Over the years I have witnessed millions of seats of ECRM software be purchased. While the technology continues to evolve to handle new content and business issues the basic principals are the same. Do it often enough and there aren't many surprises.

Except when vendors keep making the same mistakes.

Software pricing is part arcane magic and part science. Big vendors have sophisticated teams who balance their profits around the the price they charge and how often those prices will cause them to lose deals. Complex analysis is often done for server pricing, concurrent users, named users, CALS, transaction volumes, etc to optimize profits. They set the framework for prices to charge and then throw it all out the window at the end of a quarter or fiscal year when everyone is judged and bonuses are paid. Virtually every salesperson will tell you that to make maximum profits, you must first sell something.

So it continues to amaze me when vendors let their pricing strategies get in the way of winning that initial business. Consider a recent example: a customer with a slightly unusual implementation needed to support 50,000 named users but only 2,000 of them would be concurrent. Server configurations weren't determined because the customer as still sorting virtualization configurations for the distributed environment. No problem, right? ECRM vendors just needed to figure out a price, perhaps by concurrent user.

One problem: not all major ECRM vendors offer concurrent user pricing. Some have server models and named user models. For vendors that do offer both named and concurrent user pricing, the financial break-even is typically about 5 named users per concurrent user. For this customer, however, the ratio was about 25:1 meaning that vendors who offered both would be smart to offer the concurrent user pricing and win the business. Instead, one vendor stubbornly stuck to their 50,000 named users and lost. The weren't even seriously considered because the ECRM vendor decided that pricing strategy was more important than the customer's slightly unique requirements.

Contrast that with the smarter ECRM vendor who also only offers named user pricing. Rather than try to apply their rigid pricing model hopelessly in a proposal, the smart salesperson sat down with the management team and laid out the business case. Even a 2,000 user system is a good commission. The smart ECRM recognized that pricing policies need to be flexible and came up with a special pricing program that allowed them to be competitive. That vendor won.

Unfortunately, this was by no means the first time I have seen this. It continues to happen all the time: vendors who forget that in order to generate profits, one must generate sales. In an industry this mature, there is no hope for helpless vendors who say they want to solve the customer's ECRM business problems when they get can't even the get pricing right.

#vendors #ElectronicRecordsManagement #ECRM #ECM #RFP