Beware the Exploding Offer Bluff

As we head into the Labor Day long weekend, we note that this year Friday is the 31st, a.k.a. the end of the month.

Yesterday I wrote about the car buying experience and its applicability to information resource renewals.

I have bought three cars from dealers over the years - one new and two used. In each case, I negotiated the sale on the 28th or 29th of the month - and one, on December 28th - the end of the month, quarter, and calendar year. I bet I was the only customer they had between Christmas and New Year's! And I got great deals each time.

As in buying a car, you will also find that the end of the month is a big deal for sales pros at market data and information services vendors.

You've likely heard one or more of the following from a vendor:

• The offer expires 7/31
• We really need to get this signed before the 1st 
• I won't be able to offer this discount next month. 

What's driving this? Simple: companies can book, and often recognize, the revenue (or a portion of it) in the current month. That's why sales people always want to close a sale in the current month.

The problem is, these "deals" don't "expire". In effect, the vendor is showing their cards on their ability and willingness to negotiate. Don't far for one of the oldest sales tactics on the books.

The "discount" will still be available on the 1st, just as it was on the 31st.

It's not like information services vendors have expensive inventory they're carrying. These are highly scalable, low variable cost businesses. They don't have lots of working capital tied up in inventory. In fact, they don't have inventory per se - their product is non-rivalrous: selling you a subscription to X service doesn't mean they can't also sell it to Y. So you're not taking any inventory off their hands. They don't have to ship un-sold inventory back to the OEM.

What to do?

First, consider the merits of the deal, independent of whether the offer is exploding. A deadline to sign shouldn't necessarily factor into your decision around the value of the product for your organization. However, if the deal is a good one, why not take advantage of it?

Second, see the "discount" for what it is: pricing flexibility. Look at what other concessions you can extract from a vendor that's not playing firm on price. Can you get a CPI cap? A flat renewal? Additional licenses, if the ROI is there? The opportunities that open up in this scenario are many. Take advantage of them.

Third, use the end of the month tactic yourself to negotiate better deals, particularly on renewals. The earlier you start the renewals process, the more likely you are to realize savings. Say you have a service that expires 4/30 that you know you want to renew. Why not reach out in February and discuss early renewal? Your sales people at the vendor may have more flexibility on pricing if you can close a renewal with them by 2/28. Take a stab at it -- but don't appear too eager to renew, thereby undercutting your negotiating leverage.

As with most aspects of negotiation, there are two sides to every gambit. Use end of the month urgency to your advantage when negotiating renewals - you may be surprised at the savings you can extract from the seller. But don't allow vendors to use this tactic on you to get you to sign for something you don't necessarily need.

- Kevan Huston

I Didn't Ask for Nautilus Machines. Why Am I Paying for Them?

Do you enjoy seeing your gym membership go up 20% after the gym "invested" in a whole new set of Nautilus machines when you only use free weights?

Yeah, me neither.

One of the more frustrating aspects of negotiating a renewal with a market data or information services vendor is the Service Enhancement argument which goes something along the lines of:

"As you look at your investment for next year, we'd like to highlight several additional content sets we've added to your service".

There's so much wrong here.

I am being asked to pay for services I didn't actually contract for. IOW - the value of the service is based on the composition of the service when I subscribed to it. The notion that it's now "worth" more because a vendor added services I didn't ask for (and for which I haven't established a value proposition) is unproven at, and at worst, disingenuous.

Particularly galling, of course, is when a vendor tries to justify a price increase based on service enhancements that haven't even taken place yet.

Push back on these arguments. How? Point out that:

1) I didn't ask for the service addition and my value proposition is based on the product without the enhancement;
2) I have no way of establishing the value of the new service, particularly if it's one promised and not yet actually released.
3) Even if, as vendor-supplied data suggests, it was used by subscribers, this alone is unpersuasive: we didn't market the enhancement internally, train users on it, or otherwise systematically calculate an ROI for it.

For claimed service enhancements during your current contract period:

Tell your vendor you're happy to look at it on a trial basis, and require they ring fence access to the service to select pilot users so you can determine the actual value of the enhancement.

But the vendor will argue: the enhancements can't be carved out separately - they're embedded in the existing service.

Reply, that's fine, but how can I know what portion of product usage is based on these enhancements? When were they made? How can you claim there's provable value if the new service/content is commingled with the content set you originally contracted for?

Tell your vendor you're happy to properly consider the enhancements over a full contract period during which you can conduct a proper evaluation, and then pay more should it be worth it, but you won't pay for it for this renewal.

For service enhancements promised for the next contract period:

Absolutely put your foot down on this. Product development and go-to-market cycles are wildly unpredictable. A March release of an enhancement may well be pushed to July. The functionality may be limited or buggy.  You won't pay for a service that doesn't exist yet. You won't subsidize their product capex. Period. Would you take out a mortgage on a home that isn't on the market yet and pay interest on an asset you don't own? The notion is preposterous.

Pay for only what you need. Unsolicited product enhancements need to prove their worth before you pay for them.

- Kevan Huston

Manage Auto-Renewals The Easy Way: Cancel When You Sign

There's many a slip 'twixt a cup and a lip, says the proverb.

Even with the most robust renewals management workflow, you will always run the risk that a contract you want to cancel ends up auto-renewing.

You can automate your process almost end to end with contract management solutions like Icertis or Apttus, but invariably some papers actually need to be signed by a specimen of homo sapiens.

Things happen, papers don't get signed. A signatory is on vacation and can't be reached. A cancellation date was misinterpreted. And a $50K contract ends up renewing, even though you don't need it and haven't budgeted for it.

Not good.

Two things I do to prevent this

1. Strike auto-renewal provisions from contracts. Vendors will object, saying they're "standard". Push back. The only reason a vendor wants an auto-renewal is because they're counting on you to forget to cancel. Auto-renewals lower churn and increase recurring revenue, simple as that. If a vendor won't budge, limit the notice of cancellation to 30 days from the end of the then current term and add a clause requiring you get 60 days notice of renewal with renewal terms (pricing).  That gives you 30 days to digest the renewal offer before deciding to renew. 
2. Serve notice of cancellation when you sign the contract. If you really must sign an auto-renewal agreement, simply submit what I like to call pre-cautionary notice of cancellation when you send back the contract. On your cancellation notice, make sure you reference the Order Form and all agreements incorporated therein, including document name, date, number (if available), and signing officer.  Make sure the same person who signed the contract also signs the notice of cancellation. You can have them do it when they sign the contract. 

There are caveats. Do you have favorable terms in your contract that might be at risk if you cancel? Things like a CPI cap on price increases? Of course, a vendor can always try to force you to repaper with terms that strip out price increase caps, but an auto-renewal feature might help grandfather you in, and make you less of a target for renegotiated terms. 

If you take an aggressive approach to auto-renewals by cancelling when signing, be prepared for feigned offense from your counterparty. Don't be cowed. Auto-renews have the potential to play havoc on your budgeting. 

- Kevan Huston