During the course of writing the Reseller Report article which appears elsewhere in this month’s issue of Irish Computer, there was an interesting point raised by MJ Flood Technology managing director James Finglas. While discussing the competitive environment and pressures on margins, he noted that more weight was being attached to pricing in tenders at the expense of value.
“Price is a larger part of the decision than three years ago,” he said. “Previously, the price weighting might have been 40%, now it’s up to 55%.” Describing it as “a significant shift, Finglas commented that there was now a bigger challenge to channel partners that were attempting to “articulate the value add.”
While it might be easy to understand the higher priority on pricing in the current economic climate, it leaves many resellers seeking to balance two contradictory forces in their responses to tender. Many customers are keen to place more and more emphasis on value add and services in their contracts. Additionally many IT companies are keen to play up their value add and service credentials as part of an overall solution (or, at the very least, to give it the necessary lip-service).
The difficulty is that the greater weighting on price is likely to make the field more open to those resellers that have made less of an investment in providing added value and services. This conversely places more pressure on those that have genuinely well-developed service capabilities and a strong awareness of the true cost of delivering them, to realistically match the price with the services demanded.
By way of illustration, Finglas quotes the example of a recent contract in the public sector that was split into two parts. One part of the tender received only two responses while the other part got five. He says this demonstrates that many channel providers are starting to “critically analyse” the business that they are bidding for. If they don’t think it’s viable, they’re not going to put their hat in the ring. In other words, “we’re not going to sell a fiver for four quid.”
Some people will do that, of course, but as another reseller luminary, PFH group sales director Liam Halpin puts it, all they are doing is “buying losses.” Nevertheless for any market to work, in whatever strange guise, it needs willing buyers and sellers. While resellers may be buying losses by bidding too low to meet customers’ tougher pricing expectations, the customers are, in turn, selling those losses with every likelihood that, as with others who sell products that aren’t robust enough for their purpose, they will be returned in the future.
If they don’t see that, they’re likely to have a very rude awakening at some point. But this also presents a point of engagement for the reseller seeking to emphasise added value alongside price. After all, it’s no use for a customer to reach a very keen deal on price if that means the provider isn’t going to be around for the duration to fulfil the contract. If the price can’t sustain the reseller over the lifetime of the contract, it won’t last the course.
The only way anyone has come up with to make a living selling a fiver for four quid is if the fiver isn’t quite the real thing but a fake, a counterfeit. In that case, they might make a lot of money but only until they are caught. As for the person buying the dodgy fivers, they ought to know better, even if it can be very hard to turn down such a bargain
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