Buying PCs? Traps to Avoid and Money-Saving Strategies to Consider

COVID-19 has been very good for the PC business: shipments rose 13% last year – the highest level in over a decade – to facilitate the massive work-from-home migration. Leading the industry are Dell EMC, HP, and Lenovo. In terms of sales behaviors, the vendors differ in the following ways:

  • Dell offers low device prices and uses annual price increases and lifecycle services to make up margin

  • HP offers very low costs for lifecycle services but struggles to match Dell’s low prices on devices, unless they are highly motivated to win/keep the business

  • Lenovo offers good prices when there is a competitive threat involved in the deal

There are two distinct ways our clients buy PCs: about 40% purchase on a transactional “just-in-time” basis, with little or no planning, and about 60% use something called a Price Book or Price Catalog, where they negotiate set pricing with a vendor that lets them buy devices “as needed” without negotiating pricing on each purchase, and the pricing is typically locked in for three to five years. The Price Book method achieves more savings because the buyer can leverage the committed spend during negotiations to drive down initial pricing. Also, this plan allows clients to stay on a three- to five-year RFP cycle, which saves the time required to bid out individual ad hoc buys.

However, there is still buyer risk involved with the Price Book method. Roughly every year, each vendor releases a new line of PCs with updated features and technology such as longer battery life and new CPUs. This is where each vendor tries to make up for the profit margin it sacrificed with the low device prices, used to win your business.

The new models present risks to clients because they don’t have a choice: eventually each vendor stops producing the old models and forces upgrades to the new models, which can cost as high as 8-13% more than the old models, which ruins the great pricing plan initially achieved. Most clients lack a Plan B, which could be used to push back on this new pricing. Competition is the #1 way we see clients drive better PC deals, but most clients do not have the time or ability to conduct a competitive RFP every single year to combat new product releases. This can leave clients feeling stuck when, for instance, Dell comes in with updated product pricing.

We have seen the impact of these price increases snowball quickly. For example, one client in the financial services sector currently refreshes 80,000 PCs annually, at the cost of $72M. A hypothetical price increase of 13% would raise their PC costs by over $9M each year.

How One Client Pushed Back

In 2019, a client ran an RFP with the top three vendors, which yielded some of the best pricing on laptops and desktops that we’ve seen, and the client went with Dell. Months later, the vendor approached the client with updated pricing on their new 2020 models. Price increases ranged from 5-12% and were attributed to the “new Intel Gen 10 processors” in the new models. ClearEdge research indicated that Intel’s new processors carried the same recommended customer pricing as the previously used CPUs. Also, the client’s agreement included a benchmarking clause in which new products could be compared to the old models, throughout the lifespan of the deal, by an independent benchmarking company. The clause stipulated that if there was a significant difference between the old and new prices proposed by Dell, the client would be entitled to a price adjustment. The client successfully leveraged these two findings when negotiating with Dell and obtained a flat 3% increase across all devices. This move saved the client $1.4 million over the original Dell proposal.

Other strategies to push back include:

  • Get strong price hold language in the agreement that locks in pricing for the length of your refresh cycle. This is difficult to achieve due to the uncertainty in the PC market caused by fluctuating prices on the materials needed to make the products, but it is not impossible.

  • Demand discount protections that lock in fixed discount levels for the length of the deal term. This is easier to achieve because it’s less tied to changes in the cost of production and provides buyers with ammunition when the vendor presents new high prices.

  • Play hardball with the vendor: avoid falling into the sales trap of just accepting the pricing Dell gives you. Unless there’s a significant market event, we know from client cases that nobody should agree to more than a 3-5% price increase. The key to pushing back is to question your sales rep, even if you don’t have any price protections in your agreement.

When negotiating your MSAs with your chosen PC vendor we recommend clients push for this type of language to protect their pricing throughout the lifespan of the deal:

Discount Protections - describes agreement contract language with Dell for buying pcs with standard configuration

Dell recently released pricing for 2021 models, and HP and Lenovo are anticipated to do the same in the coming months as well, so now is an excellent time to prepare for a call from the vendors with their new increases. To learn more about building leverage and using best practices to negotiate successful PC deals, download our blog titled “How to Drive Better PC Deals” or contact your ClearEdge representative.

- Joe DeVirgilio is an Analyst at ClearEdge Partners.