AR Classics: Negotiating the rising value of Gartner subscriptions

Most vendors that subscribe to Gartner are being offered expanded services. Their proposed fees are also growing, often by 50%, 100% or 150%. We have observed some common tactics and experiences within its client base. However, the central pressures are not in dealing with Gartner: the severe difficulty for AR directors and other Gartner clients is now to communicate internally.

It’s possible to point to the exact cause, and to see the long-term implications. Gartner’s stock price more than doubled over 12 months, from $13 in mid-2006 to almost $27 in mid-2007. Its shares had not been this high since 1998. This rise partly reflects a large share repurchase, and partly reflects growing profitability. The firm raised its guidance for fiscal 2007, for earnings to be around 27% higher than in 2006. Since the company’s revenue increased by 10%, some of our clients think that the additional improvement is be mainly due to increased profitability on a smaller number of customers.

If our clients are to believed, Gartner gets the lion’s share of the added value created by continually increasing the average value of vendor renewals. Many vendors feel they are paying more for services they don’t need, or never had to pay a premium for previously (and that’s before we come to smaller annual price rises for the same services). They need to move beyond intractability.

Much of the frustration is with Gartner’s narrower access views of research. While Forrester’s role-based services involve a substantially new research agenda supporting new questions of deep interest to specific roles, some clients feel that Gartner’s services are simply views on already-existing research which highlight research thought to be of interest to people in that position. The services seem to provide similar research, but more highly priced.

The self-confidence of vendors in pushing back at these high prices rises differs widely. Vendors spending less than $500,000 seem to be more anxious at disappointing Gartner; they mistakenly worry that their firm’s standing in Gartner research would fall if they reduce their spending with the leading analyst firm. Vendors spending more than $500,000 have more self-confidence and are more likely to feel that Gartner analysts’ interest in their organisation won’t change just because their spending on Gartner doesn’t match that firm’s expectations.

Much of the vendors’ worries seems to rest on the largely mistaken idea that Gartner is price-gouging. Instead, Gartner is trying to find ways to increase the value it offers to vendors. Of course, it also aims to ensure that suppliers’ fees reflect the real cost of serving them by closing down loopholes.

That said, revenue and profitability remain key management metrics across the Gartner organisation. Executives are looking for increased profit: and means revenue has to increase faster than costs over the long term. They want to see that outcome from their sales managers — and without surprises. Account managers certainly face high expectations to drive up the value of deals with vendors. They also want no surprises, so they must aim to communicate Gartner’s expectations clearly. Account handlers also need to be brave enough to reset managers’ expectations when clients seem unlikely to match the suggested increase.

All of that means that communication is crucial in the negotiation process. Sadly, the negotiating and influencing skills of research buyers are often limited. They often spring unhappy surprises on Gartner: and the surprise is more likely to damage rapport than the actual decision. Some of the generic rules of negotiating are highly valuable in these discussions:

  • The first one to name a price gains the advantage.
  • Negotiators need to focus on interests, not positions.
  • Both sides need to understand their best alternative to a negotiated agreement in advance.
  • If the future value of the deal is disputed, propose contingent fees where the final value rises or falls in line with the value the solution is finally found to provide.
  • If it’s late for everyone to be happy this year, start now to set expectations for next year.
  • Participants need to look beyond reason, and anticipate emotional concerns in the negotiation.

As I mentioned at the start, the real issue for AR managers is communicating internally. This communication need has five aspects.

  1. Counter ‘pay to play’. The sharp increases in expenditure mean that managers negotiating with Gartner may have to consult internally with powerful stakeholders. Some managers will assume that Gartner’s fee is a like a license to operate and that a change in expenditure should lead to a corresponding shift in the volume of positive mentions of their firm by Gartner. Theirs is a mistaken view which is especially common in organisations which have used cash to stimulate Gartner’s attention, for example by buying advisory days, in the place of building a real rapport with Gartner analysts.
  2. Focus on value not cost. Colleagues have to understand that the question is: what is the value of the additional services in the Gartner portfolio? They need to be assured that the decision produces no analyst bias: otherwise they will focus on the cost, and not the value.
  3. Measure comparative value. Opportunities have to found to assess the relative value of Gartner: usage statistics from Gartner.com and inquiries are useful. However, surveys of internal users of Gartner services can produce powerful information about the satisfaction and insight that Gartner provides. These are robust data for communicating with both Gartner and with colleagues.
  4. Identify options. Internal and external providers of complimentary and substitute services need to be assessed. Some managers will think that $500,000 can be turned into a 20- or 30-strong team of Indian or Filipino researchers who could provide equal value to Gartner. What alternatives are viable? How far does the firm have internal intelligence teams, sources of trusted second opinions and confidence in reducing the level of services from Gartner?
  5. Neither take it nor leave it. Finally, is it just an all-or-nothing choice? Some vendors feel as if they either pay the increased rate or just put their subscription on hold so they can save up enough to subscribe at the higher rate later on. Some firms have suspended their subscriptions by paying ad hoc for Gartner reports and advisory sessions with analysts. Others accept much of the price increase but then try to increase the value of the deal even further, until they feel the added fee is justified.

Duncan Chapple

Jun 18, 2007

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