Speaking of discounts, I'm reminded of what I once heard from a great entrepreneur from my home state of Georgia, Ely Callaway. (Callaway passed away in 2001.)
Early in Ely's career, he was an up and coming management star at Burlington Industries, but the No. 1 position in the company did not seem to be in the cards for him. So rather than remain content with his position in the company, he left Burlington Industries and founded a wine company, Callaway Wines, in a growing region in California not known for the greatest grapes. But Ely Callaway knew wine.
Within four years of the founding of the winery, when the Queen of England toasted the United States on its bicentennial celebration, glasses all around were filled with Callaway Wine.
Then another opportunity beckoned, and Ely Callaway transformed one more passion into a well-run enterprise, Callaway Golf. When asked how he engendered such great success in three disparate industries, Ely Callaway offered this advice to other entrepreneurs:
"Produce a quality product, market it well and never, never discount it."
I don't know about you, but I really enjoy getting a good price when I make a major purchase. Remember that I said a "major purchase." This doesn't mean that I negotiate with the checkout clerk in the grocery store, but if I'm buying a piece of furniture, a suit of clothes, an automobile or a lawn mower, I do my best to buy below the asking price.
The best way I've found to be successful at getting a salesperson to bend on price is to simply ask for a discount. There are all kinds of discounts in the retail world, and your customers have most likely learned how to ask for just about all of them.
WHO DO YOU BLAME
I blame either the company's pricing policy or the salespeople themselves when customers become so accustomed to receiving a discount that they ask for discounts just about every time they make a purchase. The reason customers get into this very bad habit for the retailer -- but very lucrative habit for the customer -- is because we as salespeople have taught them so well. They've learned that if they ask, all the salesperson can do is say no, and quite often the salesperson says, "Okay."
ARE YOU A DEALER OR RETAILER?
DEALER: A popular definition of dealer is one who engages in trading or bargaining.
RETAILER: One involved in selling goods to ultimate customers.
So, is your business engaged in trading and bargaining or is it engaged in selling? I believe most of the readers of this newsletter fall under the definition of a retailer, distributor or manufacturer as opposed to dealer. BUT, does your behavior make customers think of you more as a DEALER?
When I think of a dealer, I most often think of an automobile dealer. Most of us dread buying a car because of the way automobile dealers approach selling their products. No matter how good a price you negotiate for an automobile, you can always find someone who paid less for the same make and model with the same accessories. For many buyers, buying a new car is more painful than it needs to be because they never believe they can trust automobile salespeople to voluntarily give them the dealership's lowest price. We have to attempt to wrangle it out of the salesperson.
Don't misunderstand me, I teach negotiating, so it's not that the negotiating process intimidates me. It's just that it's time consuming and should be unnecessary when doing business with a supplier partner. And those of us that do business with suppliers or vendors on a routine basis usually prefer to have such a good relationship with our suppliers that we don't have to beat them up to earn their "best" price.
Incidentally, Lexus, CarMax and others have over the past few years adopted a "no-haggle" price. And survey after survey shows that buyers love it.
My suggestion is this: Sit down with your boss and agree on the prices you believe are competitive. Tell your customers that based on extensive research, i.e., shopping the competition, studying multiple competitive quotes loyal customers have shared with you, analyzing the market, etc., you believe the prices you are quoting to be competitive. When they ask for a discount, say, "I promise you that we have already discounted these prices as much as we possibly can. We believe that they accurately reflect what's going on in our market."
Cost vs. Price
Your customers must be made aware of the difference -- frequently major differences -- between cost and price. Here's one group of words to accomplish this: "There's a big difference between cost and price. Price is just one factor…the amount of money we charge you for material on the face of the invoice. Cost is made up of much more…the price on the face of the invoice, PLUS you have to consider the quality of our products and services, the labor to install them, the services the salesperson personally performs, how fast your projects move along when you do business with us, how promptly we issue credits, etc.
How much does it cost your customers when jobs are slowed down due to poor service from a supplier? If you don't already know, you will benefit from asking them. Ask: "For each day of delay, how much do you believe that day costs you in dollars and cents?"
Salespeople's ability to successfully explain the difference between cost and price will often determine their ability to successfully defend the prices they quote AND avoid discounting altogether.
Bill Lee is author of Gross Margin: 26 Factors Affecting Your Bottom Line ($29.95) and 30 Ways Managers Shoot Themselves in the Foot ($21.95). $6 S&H for first book, $1 for each additional book. See Shopping Cart at http://www.BillLeeOnLine.com.
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