How procurement teams can react effectively to marketplace changes

Recently, some seismic changes have rocked those in the email martech space:

• Litmus, as part of a repositioning strategy to move towards more enterprise customers, has increased the cost for its lowest, basic tier by 151%.
• Yahoo Mail has slashed its free storage offering, down from 1TB to 20GB to push customers towards paid tiers that include extra storage.
• Yotpo has exited the space altogether - selling its email marketing and sending customer base to Attentive, who are now Yotpo’s ‘preferred partner’. 

While email marketing is a fairly niche space in the broader B2B landscape, its impact is immense. It generates $42 for every $1 spent and 89% of marketers use it as a primary lead generation channel, according to BusinessDasher.

What we’re seeing in the email martech space could happen anywhere. It’s emblematic of marketplace changes creating a ripple effect that impacts upon wider business growth strategies - and procurement is on the frontline of combatting these problems. 

How can procurement teams deal with unexpected price hikes, changes to data or ticket allowances and even market exits altogether? The more effectively these shockwaves can be dampened, the better it is for business growth.

Our team of procurement experts are on hand to help, breaking down what you can do to mitigate each situation.

Unexpected price hikes

Being confronted with an upcoming renewal with a key vendor that has recently announced an increase to its pricing is not only something that risks derailing the spending efficiency of any business, but that’s also a frighteningly common problem. 

It’s a central cause of why SaaS inflation currently stands at 13.9% YoY – almost 6x higher than the standard CPI inflation rate.

But sudden vendor price hikes can cause disruption to budgets, forecasts and even destabilize a company’s delicate tech ecosystem - as cut backs may need to be made elsewhere to afford the new prices, inevitably causing a drop in productivity. 

If your renewal is 6+ months away, get ahead of the game. 

According to Vertice data, those starting their renewal 90+ days before the deadline achieve 49% better savings on average than those starting negotiations with less than 30 days to go. 

Average Renewal Savings Above Base Discount (Negotiations started <30 days)

Why? Because more runway gives more time to:

• Search for suitable alternatives. Having a backup not only helps you compare the offerings of a competitor and introduce that to negotiations, but also gives you leverage to walk away if necessary.
• Crunch internal usage data, giving a clearer and more defined picture of how you actually use the platform. Discussions can then be tweaked to fit this data.
• Create a compelling narrative and strategy to introduce in negotiations. 

“In order to gain flexibility in concessions you need a compelling, data-backed story demonstrating the financial impracticality and constraints of a vendor’s current or proposed setup in relation to your unique use case. But you need to clearly demonstrate the value to the vendor - which takes a lot of time, research and careful planning.” Lily Siddiqi, Procurement Team Lead, Vertice

Also, our procurement team advises talking to the vendor as soon as possible to understand the price rises. Not only will their reasoning play into how you construct your narrative, but also may reveal the avenues to mitigate the cost increase elsewhere, or even a reason to exit altogether.

Changes to contract terms

As with price hikes, combatting these will occur at the renewal of the contract. Such changes could include:

• Data allowance decreases
• Standard features removed / included in higher payment tiers only
• Customer support, training and implementation reduced

These changes also represent a decrease in service, value, and usability, and can be argued that - since the start of the contract the terms have worsened - the new contract terms don’t represent value for money anymore and therefore should incur a corresponding cost saving. 

To create a convincing narrative around this, you’ll need to look at usage data and how any contract changes would affect this. If any new terms would detrimentally affect how you’re using the product now, that can be used to negotiate savings or to remain on your current contract terms.

The service provider has changed

Usually as a result of an M&A, this represents a significant risk to your business. 

The bottom line is that your service is now being run by a company, or by people, that you did not agree your initial contract terms with. You don’t have as much knowledge or transparency about how they will provision your services. 

As soon as a change of provider or vendor is made clear to you, our procurement team recommend undertaking these next steps:

1. Conduct a risk analysis of the new company - Will this cause significant changes to any contract terms? Consider that a new vendor may try and recoup their investment through immediate price increases.
2. Look for an alternative tool (BATNA). This provides a safety net if your new service provider can’t facilitate your needs. Research and market insight is key for this however, and you’ll also need to consider the risks in switching, plus the migration time and costs. 
3. Check for opt-out clauses. Review current terms and conditions to see if any significant changes, such as when a contract changes vendors, the contract itself isn’t valid anymore. This can be used to renegotiate terms or exit without penalty.
4. Monitor the performance of the new vendor. If the technical capability of the contract isn’t being fulfilled anymore (the new company can’t deliver the appropriate service) this may also invalidate the contract and free you to move or negotiate better / more flexible terms.

Even with the best preparation, one of the biggest risks companies face is vendor lock-in — when switching becomes too costly or complex. 

Our latest report outlines how to build flexibility into your contracts so you're never stuck when the market shifts.

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