One of the more effective vendor ploys involves getting the customer committed to a key product that will assure additional orders or otherwise lock the customer into the vendor’s product line.
The ploy has a number of variations, but generally works like this: For whatever reason, the customer is enticed to order or to accept a vendor product that, in itself, may seem to be a bargain or necessity; but later, the customer determines that, because of its use of the product, or its investment in it, the customer must order additional products from the vendor or face substantial costs or operating problems. In essence, the tie-in product has become the key to the vendor’s marketing plan with the customer.
The tie-in ploy can be implemented through a number of techniques. The following listing provides a few examples:
- The vendor offers the customer an extremely attractive price on a product that will require the customer to acquire substantial additional equipment in the future. Although the original product is a loss leader for the vendor, it more than recoups its discount in subsequent orders.
- The vendor consigns equipment to the customer at no charge, as a negotiating concession. During the consignment period, the customer increasingly relies on the equipment. When the consignment period ends, the customer has little practical choice other than to acquire the consigned product from the vendor – at list price.
- The vendor convinces the customer to acquire the initial component of a multi-part software product, through such techniques as reducing the price, offering a special package discount, or convincing the customer that the initial component is really necessary to fully utilize other software or hardware furnished by the vendor. Later, the customer realizes that its systems and procedures have become dependent on the initial component and it would be impracticable to convert to an alternative software vendor for the remainder of the functions offered by the multi-part software product. Consequently, the customer orders the rest of the multi-part product.
- The vendor deliberately low balls its equipment proposal, in order to get the customer’s business. Once the customer has installed the vendor’s system (or has become embroiled in doing so), the vendor encourages the customer to try some additional bells and whistles which soon become essential rather than optional.
This ploy works for three main reasons. First most customers are too naive. They believe the vendor’s marketing pitches and jump to obtain what is represented as a bargain – without analyzing whether the apparent good deal has strings attached.
Second, many IT departments (and their corporate superiors) fail to devote adequate attention to long range considerations. If the vendor’s proposal appears to reduce current costs or offer immediate benefits, these opportunities are seized upon without careful assessment of potentially adverse longer-term considerations.
Third, vendor sales personnel generally follow a detailed, long-range marketing plan. Taken together with vendor commission programs and accounting practices, the vendor marketing plan allows the vendor to determine when short-range price concessions and similar incentives are justified in order to lock-in the customer’s future business.
Several steps should be used in combating the effectiveness of the tie-in ploy. First, the customer should make every effort to identify the tie-in and explore its potential impact. This step is frequently difficult – particularly where the vendor’s marketing representative has a logical answer for every customer concern. In some circumstances, the customer may be able to gain insight by reading trade publications, talking to other customers or vendors, using peer-to-peer networks such as Caucus, or consulting with experienced professional advisers. In other situations, the customer may be required to employ a carefully designed series of questions, and a healthy degree of skepticism, in order to put two and two together and identify the tie-in ploy.
Second, the customer should remember that vendors are seldom in business to offer something for nothing. If the vendor offers a concession, it is usually tied to something. Although the concession may be the result of effective negotiating or the vendor’s desire to gain the customer as a client, it may also be part of a tie-in plan. The customer would do well to remember such trite adages as “There’s no free lunch” and “Beware of Greeks bearing gifts.”
Third, the customer should respond to the tie-in ploy with a few strategies of its own. These maneuvers should be designed to put the vendor off base by rejecting the vendor’s offer and pursuing other alternatives.
This approach, for example, was employed effectively in a negotiation involving the acquisition of a large software system for a medical center. The vendor had repeatedly tried to convince the customer to acquire both a patient care system and a financial system. The customer rejected the latter system because of concerns about its performance. When it became apparent that nothing else would work, the vendor opened the next negotiating session by announcing – to the surprise of everyone on the customer’s side of the table – that the vendor had found an unexpected technical problem. As a result, the vendor explained, the customer would have to acquire either the whole financial package, or the first phase of it, in order to obtain one patient care function that was essential to the customer.
After caucusing with its professional advisers, the customer’s senior negotiator called the vendor’s bluff, indicating that the customer would not accept either alternative and that, if the vendor couldn’t come up with a solution, the customer would call off the negotiations. (During this discussion, the customer’s attorney mused aloud about how the apparent technical problem certainly seemed to be a logical marketing move for the vendor.) After calling headquarters, the vendor’s lead negotiator advised that although the technical problem existed, the vendor believed that it had found a solution. When pressed, the negotiator admitted that the software and specifications for the fix were essentially available.
Finally, the customer should try to implement safeguards that may reduce the subsequent effect of any tie-in that may exist. For example, the customer might use a favored nation or future order discount provision to reduce the cost of any later orders (or, at least, those orders related to the tie-in product).
In a variation on this theme, the customer might knowingly accept the tie-in risk in return for very substantial price reductions on future orders. Alternatively, the customer might require increased vendor warranties concerning the adequacy of the configuration and performance of the system.
Where consigned equipment is involved, the customer might negotiate the terms and conditions of any later acquisition of that equipment at the outset, before accepting the consignment. When pressed to make contractual commitment, the customer might use options or cancellation rights (carefully drafted by the customer’s counsel) to mitigate any future liabilities.
Regardless of the approach employed, the customer should be sensitive to the potential tie-in problem and seek to measure and deflect its impact on the customer. Of course, in a few rare instances, the customer may even be able to take advantage of the tie-in offer. If the customer is able to recognize the tie-in, decipher the vendor’s marketing plan, and read the customer’s future needs correctly, it may be able to take advantage of the short-term concessions offered by the vendor, and still avoid being practically or legally tied to any future product acquisitions.