How to react facing big discount request for recurring contracts or x% cut in PO for project ?
Customers asking for big discounts in recurring contracts (M&S). In some cases, they are just imposing a cut of 20% in every PO for every project until the rest of the year. How to react?
Best Answer
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We've used a combination of the following in the last few weeks:
- pushing the full payment to 2021 in exchange for buying more - simply delaying to allow for business catch up
- splitting payments into 2020 and 2021
- discount in exchange for relieving certain obligations
- delaying complete loss of renewal for 6 months to hope for a change in their business conditions
In a nutshell, it's been all over the place.
Our customers who have continued to operate as normal are keeping the show on the road and hopefully we aren't losing that much of the cream long term.
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@Pierre Raynal, one tactic we're looking at is transitioning large maintenance renewals to subscription. When you move the transaction from support renewal to license, it give you a little more flexibility with regards to deal dynamics. We're then able to blend the subscription with premium services, maintain the booking and redirect the discussion to focus on value rather than price. In addition it accelerates the revenue stream and gives us an opportunity to sign them into a multi year deal.
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@Pierre Raynal , I agree with @Jim Bignell that moving to subscription can change the dynamic.
In terms of how to respond to a 20% discount request, that's a tough one, I'll defer to @Steve Frost for guidance.
We do have an open poll on renewals practices and policies during the crisis. There are 3 questions applicable to your context, including one that has discounting as an option. When you submit a response, real time results are shared with you: https://www.surveygizmo.com/s3/5568952/TSIA-Rapid-Research-Response-Renewals-Impact
Hope this helps.
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One option is to agree to some concession in exchange to longer terms. Shows commitment both ways.
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Thanks a lot for your answers
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JIm Bignell leaves a great option.
In a recent community exchange, one participant summarized the strategy very effectively: Get something of Value for giving something of Value. I'll provide 1 data point for you. A 20% discount on 10% of the install base with $100M in value = $2M or 2% renewal rate. A blanket acceptance or a blanket policy to accept across the board discounts will depreciate your install base value for life. You will never get that discount back until the product or service is replaced, and it sets the cost basis for future purchases. That discount will cascade down to your P&L and then you will need to balance cost to the new revenue picture. That means reducing Services or Staff.
Companies are being creative in managing the discount question. Some are offering additional months for the same price. Some are offering extended payment terms, some are offering favorable pricing on future purchases with renewal today. One suggestion is to get a commitment for a C-suite meeting you have been prevented from obtaining. Think creatively.
If you get a form letter asking for a discount it's not based on thoughtful consideration of the Value you provide and is hoping for a reduced cost of operations. Dig deeper. What do they really need to be great tomorrow and not just ask you to subsidize their recovery strategy. Your Value did not go away because times are tight. They may have gone up.
Enable your Renewal Specialist with talking points and options proactively and do not allow them to wonder in to a professional procurement officer negotiation unprepared.
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