Create a Competitive Bidding Environment to Drive Down Prices

In 2004 I bought a new car, a Honda CR-V, for invoice price - at the time $19,152.

Invoice price is what the manufacturer invoices the dealer for the car. The dealer usually ends up paying less (dealer cost) than the invoice price due to incentives like holdbacks and rebates, but in car buying world, getting invoice price for a Japanese import, is a pretty solid deal. I was pleased.

How do it I do it? I created a competitive marketplace for myself, by getting dealerships to compete against one another. I called and faxed every dealership in the tri-state NYC area, told them I knew the MSRP, dealer cost, and rebate profile (there weren't any rebates for the CR-V I was buying) for the make and model I wanted.

I got about 10 offers, most of which were a few hundred over invoice price, a couple were MSRP, and one was invoice price.

The dealers knew they were competing with each other because I told them they were! I signed a purchase agreement from the winning bidder without ever stepping foot in a dealership. It was glorious.

To get the best price from your information services vendors, try to do something like I did with the auto dealership.

When you have a renewal coming up for a product that has direct competition from other vendors, put your spend in play for all comers. This is not unlike an RFP process, but here, you're requirements are typically much more limited -- you know the content you need, so you're basically selecting on price alone. In other words, you're buying a commodity-like service. Price is the differentiater.

When the incumbent vendor presents you with renewal papers (no doubt with an outrageous price increase), explain that you're carefully considering another vendor for the business. They will know who their competitors are and their product offerings, so make sure you know your stuff about the competitions offerings.

You may well prefer the incumbent, and have every intention to renew, even at a price increase, but why not make them work for the business? Tell the incumbent you are getting a very attractive offer from the other firm, one that beats their offer and compensates you for any switching costs associated with moving to them.

Odds are you'll get a revised offer rather quickly.

Be prepared for the incumbent to call your bluff. They may think their product is actually worth the bid they've put forward, but I have not seen a situation in which a vendor with a direct competitor won't revise their offer down when you threaten to switch. Not once.

Of course, this doesn't work with every vendor - there's lots of small specialized outfits like Nilson Report or Grant's Interest Rate Observer where the price is the price, take it or leave it. These publications have no direct competition! They know you'll renew. And of course, this tactic won't work with exchanges (monopolies) and indices (switching costs).

But for most syndicated content vendors, and many content platforms, creating a competitive bidding environment gives you substantial leverage - you may even get a price reduction from what you're currently paying.

- Kevan Huston