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Budgets: little margin for error

It can sometimes seem that customers know the price of everything, but the value of nothing. Ian McMurray looks at the challenges this presents in the period before a project has started, and gets insights from four integrators on how to overcome these obstacles

If you’ve ever undertaken formal sales training, the chances are that the longest session was the one on handling objections about price: “It’s too expensive”. “It’s more than we’d budgeted for.” “Other companies are cheaper.”

Your trainer will probably have advised you not to discuss price too early in the conversation, but to try to ensure you have the opportunity to talk about your solution and its benefits at length. Your trainer will have encouraged you to believe that an objection about your price just means that your prospect hasn’t understood the value – and you need to re-articulate it. And your trainer will also persuade you that just reducing your price, without also reducing the scope of your proposed solution, is likely to impair your perceived integrity.

Price is almost always a potential issue in any sales negotiation – and that’s no less true for the audiovisual industry. With the majority of installations in the hands of integrators, it is they who are on the sharp end.

“The market as a whole has changed significantly in the past few years, particularly on commodity products and hardware,” believes Spiros Andreou, service delivery manager at CDEC. “Steep competition – both from newer integrators on the market and online-only ‘drop ship’ style resellers – has driven margins down.”

Disparity between markets
The audiovisual market is, of course, not a single heterogeneous market, but rather a collection of individual markets, each with their own characteristics.

“There is a disparity between different markets on price, both due to the types of technology being specified and the available budgets,” says Mark Childerhouse, sales director at Pioneer Group. “Education has traditionally been a very competitive market, whereas the public sector tends to be more budget restricted with very formal, price-based tender processes.”

Colin Etchells, group technical director at Saville Group, sees a similar inconsistency between segments.

“There is a significant difference between the corporate sector and sectors like education, NHS, government and local authorities,” he notes. “This is usually driven by purchasing consortiums or framework agreements with larger IT/UC contractors.  As a result, the AV integrator can finish up as a subcontractor to the main IT contractor – and invariably isn’t able to fully consult on the right solution directly with the end client. This, of course, can impact on the environment provided.”

There is an extent to which integrators are the victims of their own success. According to AVIXA, the worldwide AV market was valued at $75 billion in 2013. Five short years later, it had grown to an astonishing $186 billion – and, according to AVIXA’s latest AV Industry Outlook and Trends Analysis (IOTA) Global Summary, it will be worth $230 billion by 2023. Inevitably, that has attracted numerous new players – manufacturers and integrators alike.

Twenty companies bidding
“The number of companies with whom we compete varies depending on the size of opportunity,” explains Childerhouse, “but it’s usually in the region of two to five companies. For larger roll-outs on a national scale, it’s not unknown for this to be tendered out to up to 20 companies.”

CDEC’s experience is similar. “Generally when we bid for work in a tender scenario or competitive process, we are up against three to five other competitors,” says Andreou. “Most organisations have a due diligence process to follow and we are comfortable with our position in the marketplace and unique selling points, especially with customers with whom we have an existing relationship.”

“By way of generalisation,” adds John Masters, who is director, global enterprise framework at AVMI, “I would expect there to be four to eight initial respondents – and this tends to be cut down quite quickly to two or three parties for more in-depth negotiations.”

As noted earlier, the specific market segment will often determine how competitive a bid is likely to be.

“If it is via a University Consortium, we can be pitching against up to 12 competitors,” discloses Etchells. “The client has usually been influenced by a manufacturer – so the integrator just becomes the delivery/installation partner, and has to accept all the risk after a tender award for a design that may not be their preferred solution. There is little opportunity to be creative with tender submissions and offer alternatives because the margins have been driven to single digits.”

“In the corporate sector,” he goes on, “the client will price compare or possibly go to three companies – but there is an opportunity to really understand a client’s requirement and develop a thorough solution. Usually, this results in a client placing an order for the best solution and not always driven by the price.”