Although clients are looking for business value from professional service providers, those same providers are relying on pricing discounts to win new business, according to the second part of a study released last week by the Information Technology Services Marketing Association.
The ITSMA study on services pricing found that two-thirds of technology companies are selling IT services at a discount. The "Professional Services Pricing Study" looked at the services pricing practices of 13 large technology companies. The first half of the study, released in December, looked at pricing from the customers perspective.
The vendor-focused study found that 34 percent of the companies price their services higher than market rates and then offer a discount, and 33 percent price at market rates and then offer a discount. Such practices are typically used when vendors are pursuing multiyear contracts or when they are in competitive bidding situations with rivals, according to Rich Staples, ITSMA marketing director, in Lexington, Mass. When such discounts are offered, the scope of the project is also scaled back in most cases, Staples said.
The study also found that most service contracts written by the surveyed vendors are either time-and-materials contracts (35 percent) or fixed-price annual or multiyear contracts (29 percent).
Gone are the days of innovative pricing practices such as fixed-price plus transaction fees, equity-based pricing and results-based pricing.
"In this economy, people are so risk-averse that a lot of the downside risk is taken into account" in the reference checking and evaluation stage of a request for proposal, Staples said.
The survey was sponsored by the 13 vendors whose service pricing practices were examined. They include Agilent Technologies Inc., Alcatel USA, Avaya Inc., BMC Software Inc., Compaq Computer Corp., Lucent Technologies Inc., Nortel Networks Ltd., Siemens AGs Enterprise Networks and Medical Solutions Health Services, Sybase Inc., Synopsis Inc., Unisphere Networks Inc., and Veritas Software Inc.
Although the companies are not a representative sample of the IT industry, ITSMA officials said they believe many of the elements in their pricing practices are representative.