One of the most tempting marketing tactics in business is to offer a discount. It’s so easy to do, it generates excitement, lots of traffic and quick sales. So what’s wrong with that? Everything! Join us for a gloves-off debate about this touchy subject and learn why discounting is such a dangerous word.
Watch Discussion (18min, 25MB)
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36 Responses to this post
August 26, 2009 at 2:37 pm |
Great video!
August 26, 2009 at 4:21 pm |
Thanks JMDesign. What are your thoughts now you’ve watched the episode? Best, John.
August 26, 2009 at 5:19 pm |
Hi John,
You two are inspirational. Very well presented, and great advice! Thanks for sharing your gifts.
Matt
August 26, 2009 at 5:22 pm |
Hey Mat, welcome to Motionworks and thanks for your kind words. Best wishes, John.
August 26, 2009 at 6:16 pm |
My take on this is that one’s going rate should be enough that you are handily covering your costs and making very good profit. But having a tiny amount of wiggle room with which to grant favors can go a long way, as long as you’re not left hurting financially.
My approach is to first quote your going rate, and if they ask for a discount, try to see what extra benefits doing this favor would do, and always make the client aware that YOU are doing THEM a favor, that it’s not something they can always rely on, and that as such they should consider themselves lucky to be working with you. The least you can get is some creative breathing room, either more time to work, more flexibility, fewer revisions, etc.
August 27, 2009 at 5:43 am |
Arvin, I hear you. But let me beg you as a book publisher, with an industry entirely compromised by discounting, get the wiggle done before the quote. Build value, build, value, build value…this is all the room in the world. There are books and designs that change people’s lives for the better. No discount should apply to such a gift.
August 26, 2009 at 9:55 pm |
Great lessons and as a supporting piece of maths….
If your Margin today is 40% and you REDUCE price by 10% then you need a staggering 33% increase in sales volume to maintain the same $ profit.
Conversely if you RAISED prices by 10% your volume would need to fall by 20% before profits would be reduced.
Its why advertsising and other marketing activities that support price points deliver such great ROI.
August 28, 2009 at 2:17 am |
Thanks, Leighton. Scary figures indeed. It’s so easy to neglect the basic maths in the heat and stress of getting business in the door.
Best, Robin
August 27, 2009 at 4:00 am |
I wonder how many companies put up their prices so they can offer discounts. Let’s face it we are all suckers for discounts aren’t we? It’s a bit like tipping. Why should we be expected to pay a tip to a taxi driver or a hotel porter?
In a business we calculate the value of our product or service and offer it in the market place. If it doesn’t sell, then perhaps the price has been incorrectly calculated and the value to the customer over-estimated.
I like Rob’s approach of giving the customer what he wants and he will pay. Find out what he wants (no fee discussion) and cost accordingly. This gives value to the customer and of course, value to seller. That’s called ‘win-win’.
I do not like the suggestion of lifting prices based on the length of the customers pocket. Enjoyed the discussion and look forward to the next.
August 28, 2009 at 2:22 am |
That’s excellent input, Allan.
You highlight just how important it is to really think through prices calculations before diving into business transactions.
Also, the role of honest, transparent pricing in building long-term trust with customers can’t be overemphasized.
Best, Robin
August 27, 2009 at 4:38 am |
Great discussion! I’m assuming Robin is the older brother of the two. I’m a lot like John, and having a good supportive brother is a big plus.
Keep up the good work
August 27, 2009 at 3:55 pm |
That’s correct Denis, Robin is older than me
I’m lucky to have two brothers, Robin and Andrew. Best wishes, John.
August 28, 2009 at 2:24 am |
Think of us as BOD twins.
August 27, 2009 at 6:16 am |
I love this series. So much helpful information about the business side of what we love to do.
One question I had was… sure, it’s great to say “the fee is the fee”. But isn’t being inflexible not always good business practice for the types of clients some people deal with? For example, I have developed a great reputation with some clients for years because they know they can come to me with a low budget, and I will still give them a superior piece of work and will negotiate with them to see what we can do to fill their needs.
It would be easier for me to say “sorry, your budget is too low for what you are asking me to do.” But I would have missed out on the work these clients have given me over the years, as well as the people they have referred to me… not necessarily saying “he works with low budgets”.
If I give a client a proposal and they come to me saying “we don’t have that much money in the budget”, my instinct is to say “well, here’s what we can do for that budget”. And it’ll be a simpler idea that takes less time to create, and I’ll still usually get the job (hence still making a profit).
Perhaps you weren’t implying that this type of practice is a bad thing, but I felt like this type of negotiating should be addressed, no? In addition, sometimes I will price my fee a bit higher in a proposal, knowing that a certain client likes to haggle. So when we negotiate, I’m actually still making the profit I would like to, and the client feels like they are getting a great price.
Also, could you recommend any good books on the language of business… like how to say “no” without saying “no”. There’s an art to negotiating with a client, and using language that makes them feel like they would still come back to me for another project, even if we aren’t working together on this current one. Especially in film, one project could have a very low budget, and the next could have a much higher one.
I don’t want to turn down the first one and lose out on the next that would possibly be a bit higher (and yes, I realize I’m saying “possibly”). So I do find myself discounting my day rate a bit if I work with a new client and they are strapped for cash, but I really like the idea and the vibe I get from them. But I make it clear to them that I am giving them a “valuable deal” and next time around we should work with a budget that allows them to fully realize their vision.
But it’s language like that that is not always easy to get across in a way that makes them keep coming back when you turn them down due to lack of budget.
I know this is a long post, but I feel this is a great topic for discussion.
Thanks,
-Robert
August 28, 2009 at 2:34 am |
Your right, Robert. This would be an excellent topic for discussion.
Thank you for your generous comment, replete with honesty, real world experience and a strong commitment to doing the right thing by all your clients.
Negotiating is a favorite pastime of mine, and there are many very interesting and useful aspects to it. Rather than give you glib ‘one-liners’ now, I will say that it is a key part of BOD moving forward.
Sure, you can negotiate on price. It’s quick, easy and it works. However, my preference is always to negotiate on the other “deal levers” before touching price. Preserving the company profit margins (assuming your pricing is accurate) is imperative.
Best, Robin
August 28, 2009 at 7:33 am |
Thanks for your response, Robin. I can’t wait for the rest of the series!
August 27, 2009 at 12:19 pm |
I have a friend who has a unique way of handling people who want discounts.
He calls his method ‘the chisel factor.’
Some of his clients apparently live to beat my friend down on his invoice.
So my friend inflates the bill just enough to satisfy the urge of these particular clients who spend their time haggling him down.
They think they’ve gotten a great deal, when in fact my friend has gotten paid exactly what he would have without the chiseling.
He says it’s a great floor show watching them try to beat him up on price.
But he wins in the end.
And the clients go home happy.
To each his own.
J
August 28, 2009 at 2:38 am |
Great to see you, James. As you say “each to his own”.
James, I would be interested to know what part of the discussion resonated most with you?
Best, Robin
August 28, 2009 at 4:48 am |
Hey, hey Robin.
Thanks to you and JD for doing this series, very informative.
In your discussion about discounts, you used the example of the local grocer who isn’t going to give you a discount.
Let me pick up on that thought, and say that my local grocer uses something I’ve heard referred to as ‘loss leaders.’ He offers 2 for 1 specials on selected items. He doesn’t make any money off them, but he’s got you in the store. Maybe you take advantage of his loss leaders, maybe you don’t, but the grocer has got you in the store where he knows the psychology of the shopper: I’m going to buy much more than his 2 for 1 specials.
That’s one strategy that I have tried to use in my business. I don’t discount or give away services. I try to make a profit on everything I do. But I do what I can to get the customer to buy my services, and once we have a relationship I try to up sell them on more services.
I hope this answers your question.
Best,
J
August 28, 2009 at 7:31 am |
Thanks a fantastic example, James. So in actuality, grocers *do* give discounts. Not only to get people into the store, but also when food isn’t selling, they need to get it off the shelves or it will spoil. So it gets discounted to help move it. But I guess one could argue that there is more power in the grocer still setting these prices themselves, rather than the customer walking in and haggling.
August 28, 2009 at 2:42 pm |
Excellent input, guys.
Just building on the grocery discussion, the other thing to remember about the ‘grocery model’ is that the bigger, more successful players use discounting AND cost control together (e.g. supply chain efficiencies, securing low costs from their suppliers with volume purchases, automating customer service etc) – it’s a VOLUME model.
It’s totally set up to maximize product off-take from the shelves and bank a skinny profit margin on the way through. In grocery they say “stack-em high and watch em fly”.
Best, Robin
August 27, 2009 at 12:32 pm |
Very interesting! Thank you very much for the advice.
Regards,
Daniel.
September 3, 2009 at 5:37 pm |
Okey, great episode. But I have to ask one question about the digital era we live in:
What do you guys think of the “Name Your Own Price” Model?
Thanks!
September 6, 2009 at 3:30 am |
Thanks, inerxia.
That’s an excellent question.
My response would be, like any pricing model, as long as the business can meet it’s profit objectives, then it is useful. Ultimately, from a strictly commercial perspective, it’s all about delivering profit.
Best, Robin
October 4, 2009 at 7:28 pm |
Thanks Robin!
Im you fan, just saw the SPEND episode and enjoy every single word.
September 5, 2009 at 12:57 pm |
Just saw your bundle discount and then this story!
September 5, 2009 at 1:17 pm |
Hey Joy, welcome to the discussion. Bundling products together that are not new releases is a great way to add value to consumers and generate sales. Robin will have something to add here I’m sure. Best wishes, John.
September 6, 2009 at 3:40 am |
That’s a keen observation, Joy. John and I have certainly discussed this, and let’s say we agree to disagree. While I understand his genuine desire to add value to Motionworks customers, I am reluctant to give away any margin (especially given the amount of value John crams into every one of his products).
Ultimately, it’s up to every business owner to decide what works for them – but at least we are having the discussion.
Best, Robin
September 6, 2009 at 3:33 pm |
Joy I’m also still learning about best business practice as well. All the best, John.
October 16, 2009 at 7:07 pm |
VERY Interesting.
A while back, (at the behest of my wife) I was doing home-networks and small businesses to suppliment my income. That is to say, was setting up their infrastructures. Think about: real estate agents, local graphic design companies, accountants, tax auditors, insurance agents, etc…
I found my pricing (in hindsight was probably appologetic) at 60 an hour, was flooding me with work, I still had a regular day job, and family. I decided to call it quits, but by raising my pricing and going a bit “Natural” (meaning being more in control of what was an acceptable client issue vs. my personallity). My idea was this: my time is valuable, this is taking away from my family obligations and most of these issues were a waste. If you had internet – you honestly had an answer and didn’t need me.
So, I changed my pricing to $175 an hour, if you call me at 5:50 for 2 minutes, and then at 7:02 for 5 minutes you were paying $350.
I dropped the whole “Salesmanship Approach” by being brutally honest with my customers. “This is what you are paying, expect a very direct and thorough approach.” When I came to the door – I did the ‘look at the watch’ thing – wrote down the time, and gave a stern warning, “If you want to talk about the kids, I’ll be glad to charge you for it.”
To my surprise, I gained a handful of very loyal and demanding clients who would happily pay for my services, my time, and then my ideas, mostly due to my ability to focus on them. I now offered added value – in the form of my complete attention.
I reduced my client base from a couple dozen to less then a handful and increased my profit 2 fold.
Just wanted to share a personal experience.
Thank you both for your time and efforts.
-bb
December 12, 2009 at 6:14 pm |
Great video, very inspiring indeed, thank you.
December 13, 2009 at 2:26 pm |
Thanks Jan, what was most revealing for you in this discussion?
December 14, 2009 at 3:12 am |
The Message, that appealed to me the most, is that it is ok, not to give a discount. I live in south of Spain and here it is quite normal, I’d even say expected, to get a discount about 5 % for any service, if you go back to the same company more than twice. It’s general practice. May be it is because of the Moorish history as the Arabic nations are use to haggling for everything. :]
December 14, 2009 at 9:25 pm |
Thanks Jan, it’s always interesting to get perspectives from different cultures. Best, John.
February 20, 2010 at 6:15 pm |
Discountworks – Low price in motion.
i like it.
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