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Salesforce’s 'Incentive Pricing' Looks Permanent: CRM

December 19, 2011 | About:
Todd Sullivan

Todd Sullivan

22 followers
This is a follow up to lat weeks post on Salesforce’s (CRM) very aggressive year end pricing.

It appears that not only is the pricing very dramatic on a year end level, but those prices cuts will continue into the future. This has some rather large implications. Not only is CRM saying that it is offering customers up to 40% discounts to sign up “before year end” (CRM’s FYI 1/31/12) but they are also guaranteeing those low rates on both future renewals AND for additional users.

Here is the email (click to enlarge):

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This leads to a couple of implications:

  • As we discussed last week it means either Q4 is looking a bit like more of a stretch for the company and they are beginning to get a bit anxious about reaching their revenue # OR competition is becoming more intense faster that they assumed.
  • Looking ahead, the company is discounting revenue numbers into the future while fix costs continue to rise….this is NEVER a good sign.
Typically your “new buyer” discounts are one off events. The discount is for the # of users you have for a defined time period and then your pricing reverts to regular rates (or it is supposed to and some middle ground is agreed to upon renewal). What $CRM is doing here is not only guaranteeing that lower rate now, but into the future and for additional users. It is a bit like your local auto dealer leasing you a car, then telling you when the lease expires you can have the exact same lease on another one and if anyone else in you family ever wants to lease they are guaranteed the same rate also. It would never happen (well ,they might say that but never put it in writing).

If you are going to lower your rates up to 40% and keep those rates lower into the future, then isn’t that just a de facto permanent price reduction of your product? Now, for those of us who have ever sold anything, what is the next step that occurs???? Current customers, seeing the large pricing discrepancy between what they are paying and what you are offering new people start calling you and demanding that pricing. While you may resits at first, they will remind you they are now taking calls from sales folk from ORCL, IBM and MSFT all of who now have competing products. If they do not get the price reduction they want, more likely than not they will receive some other value (free supports etc). Either scenario means either lower revenues per accounts and/or higher costs associated with a stagnant per user revenue stream.

One thing is for sure, I think it is safe to say price increases are not something in the future for CRM users.

About the author:

Todd Sullivan
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