What is Deal Reg.? What is Price Parity? Why should I care?

“Deal Registration” or “Opportunity Registration” or whatever phrase some blue-sky thinking manager has decided on all mean the same thing:

‘First reseller to claim they have an opportunity with a customer gets better pricing’

In this guide we discuss Deal Registration and Price Parity, and why they are crucial in the IT sales process.

Deal Reg. Please!

If you are a reseller or vendor sales person, you will undoubtedly come across the infamous phrases “Deal Reg. Please” or “have you deal reg’d?”. Whilst it may at first be frustrating that your hard-earned opportunity is dismissed by the same old phrase, the registration process is the lifeblood of partner programs between vendors and resellers.

Some vendors are overly strict ‘first-come, first-served’ approach to deal registration, leading to some unscrupulous resellers throwing deal registration requests as soon as they have found a customer’s website. Other vendors require proof of a meeting with the customer, or even need to meet the customer themselves. Either way, this is typically a formal process which locks-in additional discount to you, so if you do find an opportunity, be sure to register it fast.

Why should a reseller deal reg. opportunities?

Sarcasm aside, the key benefit for this process, and why all major vendors have a Deal Registration programme, is to incentivise partners or resellers to find new opportunities, by rewarding those who first uncover them with better discounts, so they can either be certain to win the deal, or to allow them to make more profit.

However, be aware, that the actual registration amount will vary by vendor, and sometimes by vendor product line. This could be anywhere from 5% to 20% or higher. Why is this important? In the example, below, we shall assume that the list price of the widget is $100.

Deal Reg Example

• With no registration, the discount with standard discount could be 50% off-list, or $50 buy price or cost. (Grey column on left)
• With registration the vendor offers an additional 10% discount, 60%, thus $40 cost, (grey column on right)
• If both resellers add 20% margin, the respective sale prices would be ($50 / 0.8) $62.50 and ($40 / 0.8) $50. (Orange columns)

Thus, the reseller with deal registration is selling the widget at the cost price of the reseller without registration AND making 20% profit. This means your hard-work to introduce the customer to the vendor’s products, time spent writing proposals, marketing costs and other expenses, will be recouped by a profitable sale. Whilst the face-value profit of the deal may be 20%, the actual profit that the business can recognise in financial statements will be lower once other costs of sale are taken into account.

An advanced strategy would be for the reseller with deal registration to make more than 20% profit, safe in the knowledge that the other resellers should make minimum profit.

Why do vendors have Deal Reg.?

There are 4 key benefits to a Deal Reg. programme:

1. It allows vendors and resellers to track all the opportunities generated by the reseller. This can lead to higher discounts or incentives, it could unlock additional support such as access to demo equipment, it could also be a requirement of the resellers’ partner ‘level’.
2. It locks in the opportunity with the reseller who found the opportunity. Depending on the vendor, the “lock in” is simply access to a higher discount, (as per the example above), where the additional discount will greatly vary between vendors. This effectively rewards the reseller for the efforts in finding an opportunity. From a vendor salesperson perspective, it means that you are obliged to only offer price support to that initial reseller, however there are many instances in our careers where the customer has requested that a particular reseller is their “preferred partner” and thus the deal registration should be moved to them. There should be a strict process to perform this move, as this will lead to a very irate and upset reseller who lost the registration!
3. Scale. By “rewarding” resellers who bring opportunities to the vendor, it allows the vendor to scale massively. The vendor can utilise the entire reseller partner’s business as an extension of their own, which means that they have access to an entire sales team, marketing team, engineering team and others, all for the tiny cost of yielding a small percentage of revenue. This gives the vendor salesperson huge time-leverage, allowing them to return 10x-100x more revenue than if they did all the work themselves.
4. Prevents margin erosion. This ensures that resellers of their products can retain a decent margin in order to grow and increase their investment in their products. This also incentivises the reseller salespeople to introduce this product to more customers, save in the knowledge that they will be able to earn a commission by doing so. Without making a profit, partners can’t justify nor afford heavy investment in the vendor’s products, and will then stop selling the vendor’s products. This often seen when vendors offer the customer “Price Parity”.

Price Parity or “Level Playing Field”

Both phrases give the chills to reseller sales managers. So why do vendor salespeople allow this?

“Price Parity” is where a vendor allows all resellers to purchase their products at the same price. Thus, by removing any additional discounts or incentives that the resellers may have, creating a “race to the bottom”, i.e. the customer is most likely to buy from the reseller who retains the least margin or is the cheapest.

As a vendor salesperson, this may appear to be beneficial as the customer will often ask “we want a level playing field”, as typically most hard-ball procurement teams will require 3 quotations before investing. Thus by giving price parity, you feel that you are doing the customer a favour. THIS IS WRONG! This approach is taken by the weakest vendor salespeople, as it is incorrectly perceived as the least effort way to make the customer happy.

So why is this wrong? Here’s a real story, with fake names:

• Reseller Acme Inc., has invested heavily into skills required to resell Vendor Widget Corp.’s products. This includes knowledgeable salespeople, trained pre-sales people, marketing activities, post-sales support and implementation etc.
• Acme Inc., conducts a marketing campaign to launch Widget Corp.’s new product, “The Mega-Widget”. This campaign costs Acme Inc. a business development’s team time and money to create adverts and entice new customers to look at the Mega-Widget. Widget Corp. may have helped with some marketing funds towards this campaign, but even if this the case, often this is less than 50% of the cost, where Acme Inc. will pay the rest themselves.
• Acme Inc. finds a prospective customer, introduces them to the Mega-Widget, performs a demonstration of the product, shows them the value of the product, and qualifies the opportunity (see our Qualifying an Opportunity guide).
• Acme Inc. then submits a Deal Registration. This is the first time that Widget Corp. is aware that there is a potential deal.
• As the customer is new, Widget Corp.’s sales person accepts the deal reg. having never needed to speak to the customer.
• Acme Inc. continues with the sales cycle, performing further demonstrations to the wider customer team, building the Bill of Materials (BoM), writing proposals and helping the customer build a business case to purchase the Mega-Widget. At this stage, Widget Corp.’s salesperson is invited in to meet the customer.
• The customer, now thoroughly impressed with the Mega-Widget, would like to purchase the product, and signs off the project, and instructs their procurement team to purchase the Mega-Widget.
• The procurement department’s process is to obtain 3 quotations of the Mega-Widget from 3 resellers to ensure that they are receiving the best value. To do this, they ask the Widget Corp. salesperson to ensure that all partners have a level playing field.
• Widget Corp.’s sales person, who is keen to close the deal quickly, approves standard discounts for Acme Inc., and also shares Acme Inc.’s BoM and the same discounts with 2 other resellers, instructing them to provide a quick quotation to the customer.
• Acme Inc., having invested heavily in the project, is required to make at least 20% profit to cover the costs of sale. The other 2 resellers, with no investment, are happy to provide a quotation at 5% profit.
• The customer’s procurement selects one of the other 2 resellers, as they are significantly cheaper than Acme Inc.. These resellers have much lower costs as they do not have marketing teams, experienced engineers or post-sales teams to pay for.
• Understandably Acme Inc. is furious as they have invested time, effort and money into Widget Corp. and then lost a major project. Their investment in Widget Corp.’s products is now questioned by Acme Inc.’s sales director, who would rather focus on competitors to Widget Corp. that return a healthy profit.
• The customer’s procurement team is happy that they saved money, however the technical team is unhappy as they have lost access to Acme Inc., who has the skills they need to successfully implement the Mega-Widget. This leads to difficulty in rolling out the Mega-Widget, causing additional costs and delays, leading to a bad experience with Widget Corp..

Lessons Learned

1. Widget Corp.’s sales person should have not allowed price parity, and should have ensured the deal registration was upheld, and actively promoted Acme Inc. to the customer.
2. Acme Inc.’s sales person should have established better connections with the customer’s procurement teams and to understand their buying process.
3. Between Acme Inc. and Widget Corp.’s sales people, they should have worked actively together, to forge relationships across the customer’s departments to deliver a joined up team to ensure the customer receive’s the best value.

Conclusion

Deal Registration is vital. Price Parity should be avoided.

Resellers — this ensures you are profitable, and your company is fairly rewarded for the time invested in the Vendor.

Vendors — this allows you to scale rapidly by rewarding reseller partners who actively sell your products.

For more info on how to implement this, or to answer any questions, drop us a mail or visit us here.