Contributing writer

5 vendor sales negotiation tactics — and how to counter them

Jul 22, 2022
Vendor Management

Far too many IT executives are ill-prepared for the sophistication of messaging and tactics vendors bring to the negotiation table. Here’s what you should know and how you can push back.

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As companies undertake digital transformation initiatives in partnership with enterprise software providers, they must understand the sales strategies vendors use to establish leverage — and the countermeasures necessary to level the playing field.

Unfortunately, many line-of-business executives run headlong into executive-level relationship discussions without understanding the level of sophistication and thought that a software vendor and their sales team put into orchestrating their messaging and the downstream sales and negotiation process. Although vendors’ efforts in these areas may result in a mutually beneficial partnership, they are not necessarily constructed with the intent of doing so.  

As such, organizations proceeding into executive-level meetings with their software counterparts would be well advised to understand the following vendor messaging, sales, and negotiation tactics and the counter messaging that customer executives can use to help their negotiation team achieve a more mutually beneficial agreement.

Vendor tactic No. 1: Relationship leverage  

Software executives approach CEOs with an intention of demonstrating their prior and future commitment, their understanding of their client’s challenges, and how they are positioned to support their client’s objectives. Some approach the conversation with empathy and understanding while others will start with demonstrating the strength of their organization and their ability to solve the problems of the day, running right up to edge of arrogance.  

Regardless of their personality or approach, the software executive will strive to establish a point of connection and rapport with their executive counterpart as they set a baseline of expectations and lay the foundation for future interactions.  Software vendors will be purposeful in keeping the conversation strategic and forward thinking while avoiding historical matters that do not serve their future interests. As they do so, they will make every effort to steer clear of the more difficult relationship matters such as product performance, failed or challenged implementations, and unfavorable commercial agreement structures.

No matter how cordial or challenging an exchange may be, the software vendor executive will strive to accomplish these primary objectives:

  • Establish a point of connection
  • Set high-level expectations
  • Set an engagement in motion
  • Establish a future point of interaction

Countermeasure: Leverage your history  

As software vendors position themselves for the next opportunity, it’s critical that your executive team demonstrates a firm grasp of the history of the relationship. Context is important in discussing the future and the nature of the relationship in terms of past benefits and challenges for both parties.  

Unfortunately, many industry executives come to the table with a software vendor ill prepared to position examples of investments they’ve made in the software vendor relationship, such as implementation investments, product development investments, client and prospect references, speaking engagements, press releases, and financial commitments made at the end of a quarter to meet vendor financial objectives. In addition, it’s appropriate for the vendor to be reminded of past challenges. These reminders, if positioned appropriately, can serve as an effective warning not to repeat the sins of the past as the foundation for the future is being agreed on.

Vendor tactic No. 2: Product leverage  

The vendor will naturally start to position their vision, product roadmap, and view of how your organization could (or should) fit into their vision. Executives should look for subtle messages or overt statements that indicate a divergence between the path of their company and the vendor’s future vision. These are intentional. Especially in situations where the software vendor has been unable to convince the organization to upgrade to its latest-generation platform.

The software executive will likely mention that their investments are headed to the new platform and set expectations that investments in legacy platforms are not a priority. They will also suggest that achievement of your vision is dependent on adoption of the latest-generation platform. If challenged, the software vendor will indicate that their commitment to your organization is unwavering and that they will continue to support the existing legacy platform. But the message is clear: They will support your current platform, but the capabilities you seek to address the challenges you have will be provided in the next-generation solution.

The messaging and leverage established via the product vision will also be dovetailed with the commercial leverage tactics noted below.

Countermeasure: Know the value of their solution

Very few organizations are dealing with greenfield vendor relationships. The reality is that many organizations already have relationships with the top-tier enterprise software providers. Herein lies the opportunity to present back to the software vendor a perspective on the value of their solution and services. Articulation of the value obtained, value lost, or in some cases the business disruption resulting from a failed or challenging implementation can serve as a valuable tactic.

Also, many organizations are struggling with commercial agreements that have locked them into products and license schemes that have resulted in significant underutilization of solutions and lost value associated with maintenance fees and recurring subscription cost. Lastly, as software vendors sell or compel organizations to upgrade, it is important to position the business case for the upgrade (or in some cases lack thereof) as a means of increasing relationship and negotiation leverage. 

Vendor tactic No. 3: Industry leverage

Within the context of the discussion, the software vendor will indicate how they identify with the challenges of your organization and the industry as a whole. They will evidence their understanding with an articulation of how they are supporting other organizations to address these issues via their product and service offerings and how they are supporting them through their journey. This discussion may go so far as the vendor executive outlining the strategic co-innovation initiatives they are undertaking within your industry and the strategic commitments and mutual investments your competitors are making. 

While the vendor’s achievements should be viewed positively, there is an intentional underlying message that your organization is behind relative to your industry and competitors. This messaging will naturally dovetail into the software vendor’s vision to increase your urgency to move to the next-generation platform.

Know that the software vendor will be extremely well briefed and in tune with commitments your organization is making at a strategic level to address opportunities and challenges, leveraging not only their sales team, but their internal and consulting partner relationships to hone their messaging and apply subtle pressure as necessary. Ultimately, this messaging is designed to demonstrate their level of influence beyond your organization, further legitimize their vision, and create uncertainty and doubt with respect to a strategy that deviates from their roadmap.  

Countermeasure: Know your value to the vendor

Many organizations do not realize the true value they bring to the software vendor. This value can come in many shapes and sizes. For example, adoption of a new product doesn’t necessarily have to start at the Fortune 50 level. Many software vendors will target organizations with very strong brands that are nimble in nature and capable of quickly adopting the new technology that they bring to market. This client is far more valuable in certain cases than a Fortune 50 organization that is most likely to be slow in their adoption.  

Conversely, a large organization that has the scale and investment power to support a vendor and bring a new product to market via a joint development initiative or is adopting a complete set of solutions that represent a competitive displacement opportunity at scale is significant.

In addition, an organization with a strong executive leadership team, a strong project management team, and a strategy to deliver on the program is of significant value as it presents a higher likelihood of becoming a showcase customer and potential market maker to the vendor. It’s incumbent on the customer to understand and articulate its value to the vendor as a means of balancing the relationship discussion.

Vendor tactic No. 4: Project leverage 

The software vendor will leverage its sales organization, professional services engagements, and third-party consulting relationships to develop a sales strategy that contemplates the timing of your transformation. They will seek to understand timing for development of a business case, product roadmap, product evaluation and selection process, timing for presentation of business cases to executive leadership, planned approval of your board of directors, and planned commencement of the program. They will orchestrate their engagement and negotiation around these major events, speeding up and slowing down their engagement based on their read of their leverage position at different phases.  

Like the negotiation tactics of consulting providers, software vendors will fully understand when the project needs to be kicked off and the timing for when licenses are required to enable the program to keep momentum. They will understand how to leverage the project timeline against the common tactic of driving a software vendor up against their quarter end as a means of creating a mutual interest to complete the agreement. 

They also recognize that executives are stretched very thin at this point in the process as they are presenting to leadership, mobilizing the program, negotiating with consulting firms and other technology providers. As such, they will leverage negotiation fatigue and a desire to start the program to wear the client’s negotiation team down. Lastly, to the degree possible, they will leverage executive relationships to establish top-down pressure to get the deal done so all parties can focus on project mobilization and commence execution of the program.

Countermeasure: Know when the timing is right

There are very distinct times during a sourcing event that present opportunities for executives to establish leverage with a vendor. Unfortunately, many organizations view the commercial negotiation process as something that occurs toward the end of an evaluation and selection process. In a sole source environment where a competitive selection process is not being undertaken, the commercial negotiation is viewed as something that occurs after board approval or when the project is approved for commencement.

The reality is that organizations that delay establishment of the relationship principles (such as transparency, predictability, accountability, flexibility), haven’t positioned the corresponding commercial structures that align to such principles, and fail to involve an executive in the early stages of a program will obtain suboptimal results as the pressure to start a program will become the focus over achieving a best-in-class commercial structure. The vendor community knows this all too well and will use it to their advantage.

Vendor tactic No. 5: Commercial leverage

In combination with a strategic sales strategy, software vendors will rely on business practices to compel organizations to adopt new products and to maximize current and future revenue opportunities. Software vendors have learned a lot over the years, including the weaknesses associated with perpetual software license models, the strength of subscription-based licensing models, and the advantages of selling bundled solutions versus selling individual products with a corresponding value proposition and price point. They have also limited product price protections for additional products and renewal subscriptions as well as limited commercial terms and conditions in a manner that provides an opportunity for additional sales engagement based on changing business events.

Certain software providers have on occasion leveraged ambiguous license agreements to drive opportunistic audits. They also discontinue certain products that prevent organizations from expanding their footprint of a legacy environment, essentially compelling them to move to the new platform to resolve audits or expand their business. All these measures are tactics and backstops that the software vendor can and will leverage to drive desired outcomes at a time and place of their choosing.

Countermeasure: Know their business practices

Software vendors make it a point of knowing everything about your business and your priorities in advance of any executive exchange. It’s incumbent on customers to invest in understanding the priorities and motives of their vendors.

Part of this understanding must also include a detailed perspective on the past, present, and future product packaging, service offerings, pricing, and commercial contract structures of the vendor. It is essential for executives to understand the art of the possible when it comes to structuring the agreement with their vendor executive counterparts.

The reality is that software vendor executives are some of the best negotiators in the world and they have a particular advantage because of the unique nature of the technology industry. Any executive going head-to-head with a software executive without an advanced understanding of their pricing methodologies and business practices in commercial structures is at a distinct disadvantage. It is incumbent on enterprise executives to achieve these insights and counsel well in advance of initiating commercial discussions with the vendor. 

The bottom line

Far too many organizations truly do not understand the sophistication of the executive messaging, sales tactics, and strategies of the vendor community. They also do not set their executives up for success at the early stages of engagement via a well-thought-out relationship, sourcing, and negotiation strategy. Companies that seek to understand these tactics and strategies and prepare themselves to execute with the same degree of thought and sophistication will set their vendor relationships up for mutual long-term success.

Contributing writer

Len Riley is the Chief Advisory Officer at UpperEdge, with over 20 years of IT procurement and financial management experience, including the former head of IT Finance & Procurement at CVS Health and leader of AMR Research’s IT Sourcing & Commercial Advisory Practice.

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