Although clients are looking for business value from their professional services providers, those same providers are relying on pricing discounts to try to win new business, according to a study just released by the Information Technology Services Marketing Association.
The ITSMA in the second part of its study on services pricing, found that two-thirds of technology companies are selling their IT services at a discount. The "Professional Services Pricing Study" looked at the services pricing practices of 13 large technology firms. 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 firms price their services higher than market rates and then offer a discount. Another 33 percent price at market rates and then offer a discount. Such practices are typically used when vendors are pursuing multi-year contracts or when they are in competitive bid 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 added. The study also found that most services 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 or 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 services pricing practices were examined. They include Agilent Technologies Inc., Alcatel U.S.A., Avaya Inc., BMC Software Inc., Compaq Computer Corp., Lucent Technologies Inc., Nortel Networks Ltd., Siemens Enterprise Networks, Siemens Medical Solutions Health Services, Sybase Inc., Synopsis Inc., Unisphere Networks, and Veritas Software Inc..
Although they are not a representative sample of the IT industry, ITSMA officials believe that many of the elements in their pricing practices are representative.