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Article : Why Multiple Carrier RFP's Fail to Maximize Savings

By Justin Fuller, Executive Vice President of Business Development, G2 Inc.

What industry has experienced the greatest reduction in market prices over the last decade?  Like most executives, you immediately think of telecommunications. What drove these reductions? Of course the answer is simple: competition. To maintain profits and survive, the carriers have adapted by mobilizing their resources and exploiting customer limitations to minimize the impact.

The Role of the Special Pricing Organization
The carriers all know their competitors' prices across all average to world-class deals because, like all companies, they read the competitive landscape. To further control their highly competitive environment they have formed unique Special Pricing organizations to monitor the market, gather intelligence, control pricing, approve deals and direct negotiations. These somewhat covert organizations make all the important decisions, but customers rarely negotiate directly with them. They have complete knowledge of the market while their customers comparatively have very little.  It is the job of the Special Pricing groups to hold onto margin while convincing their customers that they received the very best deal possible.

The slightest ripple of change to any price point is immediately known among the major carriers. The incumbent carriers use the information developed through Special Pricing to gauge proposal pricing so it is aggressive enough to ensure the business is won, but not too aggressive to unnecessarily erode margin. There is a significant difference between the rates carriers must offer to retain business and their leading-edge pricing. 

The Pain of Network Migration
For practical business reasons, companies rarely migrate business from carrier to carrier.  Transition costs are high, customer service may worsen and for those involved, time is precious. The incumbent carrier - regardless of what is ever communicated by the customer - understands they will likely win the business regardless of the competitive environment. 

Most customers change carriers due to an overall dissatisfaction with their incumbent, not solely because of savings offered by the competition. The non-incumbent carrier Special Pricing groups will price proposals just below the incumbent to gain credibility and earn goodwill, but know all too well their changes of winning are slim. Look back on your own experience with prior RFP negotiations and this pattern clearly emerges.

RFP Expectations vs. Reality
Conventional wisdom states that a competitive environment is the best tool to drive down telecom costs. However, customers often misunderstand the sophistication by which the carriers control their market and how they use the pain of changing carriers to their advantage.

Because the incumbent carrier knows how their competition will price, they never have to offer as much savings as the non-incumbents due to migration costs. The non-incumbent carriers will never disclose their best pricing for two reasons. One, there is little chance they will win the business no matter how aggressive they price a deal, and two, exposing their best pricing only serves to further erode the market and existing customer profits.  

What is the Solution to Maximize Savings?
Special Pricing will respect their customer's mastery of the market and logically recognize that the requirement for best-in-class pricing is demanded from all carriers. No carrier will risk the competition meeting these requirements. With the veil lifted, the carriers are stripped of their power to withhold rates and the leverage is now shifted to the customer.

About G2, Inc:
Company LogoSince 2000, G2, Inc has provided Contract Negotiation services to Fortune 500 and Global 100 companies across all industries. G2, Inc’s clients are some of the most well-known names in business with telecom infrastructures spanning across the Americas, Europe and Asia Pacific.
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Published: Thursday, March 20, 2008

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