Vendors revving up red-hot sales vehicle

In this age of deregulation, the General Services Administration has become a kind of high-technology bazaar in which vendors and customers can wheel and deal much as they might in the commercial arena, and spot pricing in particular has become a hot issue.

In recent months, holders of GSA multiple-award Schedule B/C contracts have moved aggressively to take advantage of spot pricing. Sometimes referred to as ad hoc discounting, spot pricing allows vendors to extend a price break to an individual federal customer or to offer a product at a special sales price for a limited time to the entire government.

The pricing method, a product of GSA schedule reform, represents a sharp departure from previous years in which schedule pricing was far less flexible.

Spot pricing became possible with the 1995 GSA schedules. However, the practice has become especially popular in recent months, particularly with the lifting of the maximum ordering limits on the 1996 schedule business, vendors said. Examples include the following:

BTG Inc. recently used spot pricing to provide a volume discount to the Defense Information Systems Agency on licenses for Netscape Communications Corp.'s Navigator Web browser.

Computer Associates International Inc. is providing a special introductory price on its Year 2000 toolset.

Digital Equipment Corp.'s Memory Madness promotion offers 15 to 20 percent discounts for AlphaServer and AlphaStation memory products.

Lucent Technologies Inc. is holding a "sale" on voice response systems through the GSA schedule that it has advertised with a mail promotion.

Lucent's promotion includes "the first-ever government coupon," said Steven Kelman, administrator of the Office of Federal Procurement Policy. The government has been talking about being more commercial for a long time, but "this is it," Kelman said.

Thus far most companies have used spot pricing to offer volume discounts or to pique interest in a particular product through a special sale price. However, some industry executives said another motive is to head off price competition from governmentwide indefinite-delivery, indefinite-quantity contracts.

"[For] someone who has a GSA schedule but not a major [governmentwide acquisition contract], they can be more competitive by taking a discount off a GSA price in a special situation," said Joe Santamaria, vice president and general manager of information technology at Unisys Federal Systems.

BTG has primarily used spot pricing to offer price breaks on large orders. "Usually, it's something we do when the volume of the order justifies that the end user should receive a discount," said Gary Brown, director of sales at BTG.

Brown said BTG can offer a discount to a single customer without having to offer the discount governmentwide, provided the sale is in excess of $100,000 for a hardware buy or $50,000 for software.

On BTG's recent $3.3 million Navigator sale, the company priced the browsers at $18.33 apiece, as opposed to the regular GSA schedule price of $27.95.

Electronic Data Systems Corp. likewise employs spot pricing primarily for volume discounts. "We do it...on larger-quantity kinds of deals," said Paul Rector, the program manager for EDS' GSA contract. He cited a case in which EDS offered a discount to a Navy customer that bought 500 to 600 PCs. That order was worth around $2 million.

Unisys' Santamaria said that, generally speaking, spot pricing applies in high-volume situations. He said the company has not used the approach much to date, but he added that the practice will probably increase during the fiscal year-end buying season.

Other vendors are using spot pricing as the equivalent of a consumer retailer's "blue-light special."

While Lucent's coupon may be a new twist, a number of vendors have been offering different flavors of spot pricing. For example, Dell Computer Corp. and International Data Products Corp. highlight specials on products or product bundles on their World Wide Web home pages. Others have done telemarketing or advertising in trade publications.

Frequently, vendors use these promotions to push new products or to highlight bundles that may be of particular interest, such as CA's Discovery 2000.

For some time, CA has pulled together special deals to offer to its commercial customers, "but federally, we have always been handcuffed," said Matt Adams, vice president of the Information Management Group in CA's Federal Division.

With the new regulations at GSA, "we were able to put this package together at a very attractive price to draw business," he said.

Monique Henderson, a GSA specialist with Microsoft Corp., said special pricing will most likely take the form of an introductory price on a new product. She said Microsoft's federal resellers are free to pass on "any special" the company has, but they are not required to do so.

Other resellers noted that they will pass along a manufacturer's special pricing as a GSA spot discount.

Despite this first slew of special promotions, spot pricing - particularly on high-volume purchases - will play a bigger role once the government learns to take advantage of it, vendors said.

Spot discounting is a "fantastic initiative," but sometimes it is difficult getting a deal through GSA contracting in quick order, said Ed Hammersla, executive director of federal operations at Informix Software Inc.

"While the regulations are there and allow everybody to take advantage of them, agencies have been slow to accept them," CA's Adams said.

Mostly, it is a matter of educating everybody involved and making it part of internal policy at the agencies, vendors said. Industry, along with GSA, is working to spread the word.

"I've sent messages to my organization saying this is a wonderful thing, and we ought to take advantage of it wherever we can," Hammersla said.