The Discount Trap

October 28, 2010 — 2 Comments

Are these cars really on sale?  Quick, let’s run down and get one…I remember the first car I bought off the lot.  I was just graduating college and I told my father about a big sale they were having at a local dealer.  He looked at me…I could see what he was thinking.  “Didn’t I just pay to put you through college?”

How many people drive away from the car dealer feeling like they got a great deal?  It never happens.  Why?  We don’t trust people that sell cars because the entire sales process appears to be dishonest.  You drive up, there is always a sale going on with some silly inflated monkey in the parking lot, the sticker price is meaningless and the sale price is a deception.  Between Edmunds and Kelley Blue Book, we now know that car dealer sales, their “invoice price”,  and the margins they’ve claimed are all lies.  There was margin in the mystery of car pricing, but that mystery has almost completely disappeared leaving dealerships with one of the worst reputations in sales.  Even the line, “Preowned” is ridiculous.

Discounting is a trap.  No one expects to pay list on Cisco or HP products, and most know what to expect in terms of street price.  Well, you can’t really control the street price as a rep, but you can help position your firm as one of integrity by dealing with consulting prices properly.  Here are some principles to consider when proposing project work:

1. As I wrote yesterday, fix price all services.  T&M means “dollars per hour” and is a commodity business. Avoid this trap on high-end tech project work. (These prices should only be used in staff-aug work).

2. Price based on value.  Don’t deliver prices until both parties know and agree on the value.  In other words, don’t short cut the discovery process just because the client needs a quote now.  If you’re wrong you lose.

3. Once the price is submitted, stick to it.  If you quote $10,000 and then come back with $7000 for the same scope, you just lied.  You said it would cost 10K but now you’ve changed your mind.  It really costs 7K.  Is 7K really it, or can I get you to cave some more?  And what will happen next time you quote?  Are you going to say, “This time I am giving you my final price?”  Do you see how silly this sounds?

4. If the price is too high, one of two things happened.  The value changed in the mind of the customer (or something else just trumped it), or you didn’t gain agreement with the true decision maker before quoting the price.  This happens, so now what?  You must change the scope!  Either do it in phases, change the deliverable, change the person doing the work,…but change something.  You can’t win by discounting…instead you become their car dealer’s peer.

5. If in the end they can’t afford you, leave them wishing they could afford you.

At times customers have said, I can get the same thing for 20% less from another firm.  In the speaking industry I often hear, “We can get an event or “lunch and learn” speaker from the manufacturer for FREE!”  But is it the same?  Of course not….sell the value.  “If you can get the same thing for free or 20% less, go for it!  But you can’t and here’s why.”  Then be ready with your value proposition.  If it’s great, you will either win or leave them believing they have second best.  Both should be seen as acceptable outcomes.

© 2010, David Stelzl

Advertisements

2 responses to The Discount Trap

  1. 

    All very valid points Dave. Our firm routinely delivers on value at a “Fair” price. We quote services based on experience, the desired deliverable, and variables. If you quote a fixed price knowing that the scope is fuzzy, you may or may not come away with the desired result. The discovery process can be tedious however, if you have clear agenda items and define the risks most times our clients will work with us to gain clarity.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s