Watch out for wacky CRM pricing: Page 2

Posted September 1, 1999
By

Larry Marion


(Page 2 of 2)


Tough times, tough tactics

While the cost of integrating disparate software packages is what really pushes up the final bill for implementing CRM on top of ERP, paying another software license should gall you as well as your CFO. Based on interviews and other research I've done recently, it's time you played hardball on CRM pricing. While a host of integration and features and functions issues should dictate your choice of CRM software, once you've made the choice, keep the following negotiating scenarios in mind:

What is CRM?
The following product categories and functions are considered part of customer relationship management software. A complete suite is almost as big as an ERP suite.

Salesforce automation: Contact management, pipeline analysis, quote to order

Product configuration: On the fly product design modifications, instant quotation

Call center management: Inbound, outbound, and blended telephone activity support

Field service management: Repairs and return management, repair depot inventory status, scheduling

Marketing: Campaign analysis, profitability analysis

Telemarketing support: Tracking calls, activities, returns

Source: Datamation

First, realize that some of the point solution vendors have been playing games with you. An ERP vendor that recently did a deal with a CRM vendor told me when he asked his new partner how he charges for its CRM products, the answer was, "First we determine how much money they have in their budget, and then we ask for a little less."

Second, understand that bundling an ERP upgrade with a CRM purchase makes sense for the vendor and for you. Negotiate the two together and you'll get a better deal. The major ERP vendors are desperate to keep their customers and will get quite aggressive in their pricing.

Third, ERP vendors anxious to sell to the middle market are sensitive to the economic environment. A $200 million company can't really afford a $5 million ERP project, let alone a $1 million CRM effort on top of that. Again, push back on pricing. Pared-down versions of CRM suites can be had for $1,000 to $2,000 per user.

Fourth, ask about freebies. Carter Lusher, the well-known CRM analyst at consulting firm Gartner Group Inc., of Stamford, Conn., recently noted that several ERP vendors are giving away certain CRM modules such as field service to customers that buy other components.

Fifth, assume that some significant group of your CRM users will be field sales, service, and support individuals who connect to the system using a PalmPilot or similar handheld device. Even the most rapacious vendor doesn't expect you to pay $500 or $1,000 for software to run on a $500 device. I've heard of deals where the incremental cost of adding casual PalmPilot users was less than $100 per user. Keep that figure in mind.

Some ERP vendors, notably SAP AG, of Walldorf, Germany, acknowledge the pricing anomalies. George D'Auteuil, vice president of CRM at SAP, says, "The way we're pricing this out, there will be a marginal, if any, difference from [ERP] pricing." He says SAP won't price its CRM functionality on top of R/3 ERP functionality. Instead, it puts together a set of functionalities, called scenarios, to fit the users. D'Auteuil claims SAP pricing of the scenarios that include CRM and ERP functionality will be in the same ballpark as what you're already paying for ERP alone.

My analysis: SAP is highly motivated to establish itself as a CRM supplier. Yet the complexity of the integration and function tasks are such that SAP is behind in its own schedule for releasing some components, and it is way behind the mindshare achieved by Siebel, Vantive, and other CRM vendors. So CRM is priced to move at SAP, though at this point many of its CRM functionalities are not yet in general distribution.

Indeed, if you're careful, you can make the CRM negotiation with your ERP vendor a win-win situation instead of a highway robbery. //

Larry Marion is an editor and consultant with more than 20 years of experience in the use of computer technology in manufacturing and finance. He is the former editor of Datamation, Electronic Business, and LOTUS magazines. He can be reached at lmarion@mediaone.net.

Footnotes

Comments from vendors and users about customer relationship management software:

"We decided in Jan. [1999] that we wouldn't try to build our own. If we had built our own, we would not have had it ready until 2003." --Ray Rebello, vice president of marketing at J.D. Edwards & Co., Denver, commenting about the May 1999 deal to resell the Siebel suite of CRM functions

"CRM and procurement are now part of ERP." --Josh Greenbaum, principal with Enterprise Applications Consulting, of Berkeley, Calif.

"J.D. Edwards and Siebel are a tough mix of cultures." --Greenbaum

"Users will not pay for CRM on top of ERP." --John Guest, CIO of Paradyne Corp., of Largo, Fla., a data communications equipment maker and J.D. Edwards ERP user

"How many of the best-of-breed players in any market are around in 10 years?" --Robert Rosati, program manager, business systems development, for ladder maker Werner Co., in Greenville, Pa., who is in favor of supply chain and other extended ERP functionality being offered by the ERP vendor

"We'll see verticalization of CRM modules." --Larry Ellison, chairman, Oracle Corp., of Redwood Shores, Calif.

"We're going to kill Siebel." --Oracle's Ellison

On pricing...
CRM vendors can't do per-seat pricing. They need creative pricing." --Peggy Menconi, research director, Customer Relationship Management, AMR Research Inc., of Boston

"The middle market will pay a comparable price for front office [CRM] and back office [ERP]--not more." --Menconi. She adds that the new middle market version of Siebel's CRM suite is a "reasonable job of paring down functionality." Siebel took out the "overhead functionality that a large company needs--some of the sales forecast functionality and report generators," she says.




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