Why securing good value requires more than a bit of bargaining.
Has a customer ever asked you for a discount? And what was your reaction? What did it make you think?
In some sectors, this is a regular occurrence but, for most suppliers of goods or services, accurate pricing is a carefully considered part of their business strategy. And for a supplier faced with this request, what goes through their heads? Doesn’t the client value what we do? I’m already competitively priced and I don’t want to cut margins. What is the longer term impact on business with this client if we reduce prices now?
Pity the purchaser
From the purchaser’s point of view it can be equally challenging. It’s about more than securing a bargain. Putting aside the buzz of getting a cracking deal, it’s also about budget constraints and perhaps balancing short term imperatives with long term needs. To take a DIY analogy, “I know the wood needs sanding, undercoating and painting properly – but for now I’m just going with a quick coat of gloss…”
And while we all know that the cheapest isn’t always the best value, the relationship between price and value for money can be surprisingly complex.
Succeeding at being the cheapest is hard to do
Cutting prices is a dangerous game. All too often it can start a price war in your market where no-one is the winner.
If you (or your friendly investors) have deep pockets it might work, provided you’ve got a great product and you know you can out-discount your competitors for longer. But it still takes nerve to persevere. And until your last rival is out of the field, you’re going to remain potentially vulnerable. Just ask the airline industry.
Accidentally, someone’s created a monster
And a by-product of cheap is that public expectation becomes attuned to getting a certain product for a certain price, regardless of the real costs of supply. Think farmers and milk. And think airlines again, too. Under ever increasing pressure to have seductive lead-in prices, flights on budget airlines are priced for the absolute basic (a seat on a plane from A to B) and the natural comforts (meals and modest amounts of leg room) are add-ons for which we pay handsomely. This is now such a common occurrence that we accept it as part of the process and pay up when we have to. But the process can be more insidious. And for the airline with a competitor, while revenue is recouped via add-ons, it’s still hard to increase the basic seat cost.
As another example, take websites. There are several well-known brands that provide off-the-shelf website templates. These companies provide a good product and a good service. With one of their off-the shelf sites, it is possible for someone with no prior experience to create a simple website, a shop window, if you will. And because this basic product meets a need, and because they are advertised heavily, it’s a common belief that all websites should be cheap.
Identifying your purpose is a pre-requisite to ensuring good value
Sticking with websites, I’ll come clean: yes, my business includes website development. so there may be a small axe to grind here, but please stay with me.
With a widely held belief that websites are usually fairly cheap, there is a perception faced by many website developers that the service they offer is expensive. It can be quite a challenge to explain that the off-the-shelf templates are cheap because they are basic in their functionality; and that something more, a custom built website, requires additional time and money. When faced with the need for a complex website, elegantly coded and with wide functionality, the client’s learning curve can be a steep one before they recognise the value that comes with expertise. Then they are willing to invest.
For the purchaser, then (and we are all purchasers), it really pays to do the research, ignoring, so far as possible, popular beliefs and focusing on what we want our purchase to do. With another example (and supposing the world post Covid requires us to do such a thing) how do we, male or female, go about buying a new suit? What do we need it for? How often will we wear it? Does it need to be the height of fashion or more long-lived? How much are we prepared to pay? If we address these questions honestly before going shopping, the chances are we’ll get something that represents good value.
Getting what we pay for?
It’s a common saying and it fits neatly into many a context. The salesperson in a smart shoe shop will congratulate you on your sophisticated choice; a vendor of cheap pencils that always break will wonder what you expected. But the choice and the satisfaction derived will depend, ultimately, on your purpose as well as your aspiration. The real question is slightly different. It isn’t about being ready to get what we pay for – it’s realising that willingness to invest is directly linked to clarity of purpose. It’s about being ready to pay for what we need. Then we’ll get value for money.
And, yes. I’ve really gone off those cheap pencils.
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