What if the customer says “I can only spend $x on support”?

In tough times pricing negotiations can get very tough and some customers are essentially setting their own price. They decide how much they will spend on support and present the vendors with an ultimatum: they won’t spend more than a certain sum, take it or leave. What can a vendor do?

1. Establish a relationship with the head of the line of business group that uses your product prior to the ultimatum. Price ultimatums are typically set by the purchasing team, which usually knows little about the way the support contract benefits the company. If you can instead negotiate with the head of the business group that uses your product you will find much more understanding of what’s needed. Naturally this assumes you planned ahead: relationships take time to evolve.

2. Demonstrate that the current price is a great deal. Often support pricing carries hefty discounts that originate in the history of the business relationship — but the “list price” is rarely shown in the quote. Try showing it. Psychologically the bill seems lower if it is a result of a discount (and many purchasing agents are compensated on the discounts they negotiate, so could become more accommodating if you serve one up to them.)

3. Show options. Here again the same bill can seem lower if paired with a higher option. Try sending all bills with two options, the current setup and the offering level right above it.

4. Use the next-lower option during negotiations. Say you have three support offerings, Bronze, Silver, and Gold, and the customer bought Silver. If they balk on price offer to sell them Bronze. At least you salvage some money and with any luck the users of the support will push to restore the level they enjoyed to begin with. (I would not show the lower option on the original quote; keep it as a back-pocket option.)

5. If needed request “custom” concessions. For instance let’s say the customer refuses Bronze support (they need 24×7) but won’t pay the price for Silver. Perhaps you can cut down on the number of technical contacts as a partial compensation for your concession. Generally speaking do not make price concessions without asking for something in return. Remember that concessions you make today will likely carry over “forever.”

6. Remember that mission-critical tools are just that. If your customer’s usage of your products is mission-critical they may negotiate very hard, but in the end they do need the service. Offer a few low-cost perks to soften the edges (e.g. an additional support contact, a few free training seats) but hold firm on the overall price.

Revisiting the idea of fixed prices for support

We’ve talked about fixed pricing before on this blog (here and here), mostly as an alternative to the common practice of pricing support as a percentage of the base license fee, a standard approach in the high end. Although I’m not necessarily a fan of fixed pricing because I’m concerned that it may create some missed opportunities in the high end one area where fixed pricing may be particularly strong is in resisting discounts. As we know customers often obtain very significant discounts on software licenses. If you compute your support prices from the license price, a generous license discount will translate into an even more generous support discount (assuming that you calculate pricing from the discounted price.) So starting with a fixed price may help you avoid runaway support discounts.

Does premium support require an assigned support engineer?

The idea of assigning a support engineer to an account is simple and attractive: instead of working with a randomly-assigned person with each new case, the customer can count on working with the same person each time (or close to each time, as even assigned support engineers take time off.) The assigned support engineer gets to know the customer well, which speeds up resolution, and can often provide proactive advice on configuration and the like.

Experience shows that the idea of having an assigned support engineer is very attractive to customers and customers who purchase a plan that includes an assigned support engineer typically renew in higher percentages than customers with a standard support plan.

Before you rush to implementing such plans, however, think about how you will staff for it. If you have a particularly wide portfolio of offerings, will you be able to located someone, anyone, with knowledge of all the products a particular customer may be running? It’s always possible to assign someone who knows the main products the customer is running and can get help on the others but that can get awkward (and defeats the goal of fast resolution.) The other issue is more subtle: what if the customer has a large number of issues at once? Will resolution be hampered by the diktat to work with that one support engineer? With a regular customer you would simply parcel out the cases amongst several engineers but that would be more delicate under an assigned support engineer program.

I’m seeing companies experiment with small “account teams” instead where customers can work with a handful of individuals, which may deliver the best of both worlds: personalized service and flexible scheduling and specialization. Maybe that would work for you?

Want to brag about your support portfolio?

I am looking for a few brave soulsto be featured in my upcoming book about support marketing. The idea is to highlight various support portfolios, SLAs, price structures, support contracts, and pieces of support collaterals to inspire best practices. I’d love to publish your name and company name along with the materials but we can do some disguising as needed, so don’t be shy! If you are interested please post a comment or email me privately at flt@ftworks.com.  

You will get a complimentary copy of the book if you’re featured in it, plus advice on how to further improve your offerings. This is your chance!

How important is competitive analysis for support?

Knowing your strengths and weaknesses vis a vis the competition is critical for success if you want to successfully sell a product or a service, but does it matter for support since, after all, customers can rarely purchase it from another vendor?

Yes because

1. Presenting a reasonable (as measured against the competition) support portfolio underscores that your company is a reputable vendor that can be trusted.

2. Removing the obstacle of having to defend unusual support offerings makes life considerably easier for the sales team.

3. Offering defensible pricing schemes makes negotiations easier and faster (and deters uncontrolled discounts.)

4. A competitive portfolio makes it easier to renew support contracts.

5. A comprehensive portfolio allows you to redirect customers’ requests for extras towards purchasing a higher level of support.

So indeed, a competitive analysis of support offerings is a great idea!