Winston Churchill allegedly asked a high society dame if she’d sleep with him for a million pounds. “Well,” she blushed, “that is indeed a great deal of money.”
“How about for 100 pounds, then?” he asked.
“Sir Winston!” she huffed, “What do you take me for!”
“We’ve already determined that,” he said, “we’re just haggling about the price.”
In a nutshell, that’s the problem with discounting in complex businesses. It sends certain messages to the customer/client about how you view your business.
So why do we give discounts? Mostly because our clients ask us for price reductions, and—foolishly—we take those requests at face value. The truth is—it’s never really about price. Even when (especially when?) they say it is.
Here are four common requests for price reductions—none of which is about price.
- Great Expectations
The client believed the price would be X. It was 2X. The client is embarrassed and frustrated—and asks for a price cut.
But the problem wasn’t price—it was the very human self-annoyance when we find our expectations out of whack with reality. Your job is not to discount, but to sensitively educate the client without embarrassment.
- Budget Busting
The customer only has budget for X; you quoted 2X. The client is feels trapped, and—again—embarrassed. The reaction is to ask you for a price cut, hoping for a deus ex machina solution.
The problem is, if you discount, you encourage more manipulative behavior in future, and—again—you send Churchill’s lady’s message.
- Competitor Stalking Horse
If the former, get transparent and help the client compare proposal features. If the latter, have a heart to heart about your industry’s economics, and show why a 30% discount will have to be recouped in 6-12 months; therefore the client has a choice between a relationship supplier or a transactional supplier. If they choose the latter, be assured your competitor just lost money and you’ll probably see the client again in 6-12 months.
- Bazaar Behavior
These are the kinds of reasons clients ask for price breaks—and firms respond by giving discounts.
To paraphrase Ronald Reagan (whom I never thought I’d paraphrase):
Discounts aren’t the solution to the problem, discounts are the problem.