The Gap reached an adjusted high of about $55 per share in 2000, but has been bouncing along in the high 20's or low 30's since around 2002. It would be interesting to know when they started their aggressive discounting policy. My guess is that it began when the stock began to fall and competition increased.
Discounting is common in all industries, particularly the software vertical where customers expect a discount and will wait until a quarters end to get the best possible price. I worked at The Mathworks a few years ago and they are the only firm that I know of that refuses to discount and actually gets away with it. Customers now know the discount policy and do not ask for one. The Mathworks has been a very fast growing company in a competitive space so it is interesting that they continue to be able to get away without discounting. I believe they have done a great job of linking price to value and have enhanced their brand in the eyes of their customers. They are a model that others should try to replicate.
Recently, a competitor of ours at Harvard Business Publishing has been offering a 25% discount on their courses through year end. The competitor is a high end, well know brand in the corporate learning space so it was a big surprise that they were doing so. Their policy is a great competitive selling point for us as we can plant the seed of doubt in our prospects minds that their courses must be inferior to ours if they have to run a sale.
Once you start to discount your product or service it is very hard to get full price or even raise prices.Price should equal value but if a customer knows you will eventually cave in and discount than you have lost that relationship and your brand suffers in the end.
3 comments:
Right on, Garrett. Discounting may be the norm in certain industries like retail apparel and enterprise software, and yet I find it borders on bribery and corruption. "Everybody does it" doesn't make it right.
Granted, publicly traded companies need to meet or beat forecasts to preserve their equity value, and yet we find that discounting prices at quarter's end is another way of permanently discounting the future value of all business from that customer, which also damages revenue and value for the seller.
My negotiated price, once mutually agreed, is my best and final. Why would I lower my price for a customer simply because of an arbitrary date? If you want a lower price, expect to renegotiate the service, or you will receive reluctant performance and low enthusiasm at renewal. Smart sales leaders are perpetually challenged to cull loss leaders, and that's what you become if you enjoy artificially deflated prices.
I have seen corporate VPs, procurement & supply chain managers, and everyone in between behaving with slavish devotion - often actually incented by official policies - to gouge vendors just to notch a "win" and somehow inflate their professional capital. I believe this borders on corruption, a sort of reverse bribery, and I consider such gamesmanship antithetical to ethical business principles.
If you have done a solid job of articulating the value proposition of your proposed solution and demonstrated the cost effectiveness of your product or service, your prospects should not suddenly get distracted at the eleventh hour by gamesmanship, gouging and negotiation judo.
It cuts both ways, too. I once had the bizarre experience in which a prospect's lieutenant confided that to win the account I simply needed to have her egotistical VP feel like he'd won some special concession, to "notch a win" on price.
I had already handily demonstrated, using the prospect's own data, the substantial cost effectiveness of adopting my proposed solution, and yet here was this VP arbitrarily stonewalling on price at end of quarter even though the entre buying organization was on board with my proposal.
I was astonished (and naive, too, I guess). My boss showed Mr. VP an arbitrarily inflated price list, then offered an "olive branch" discount which (secretly) brought his price back down to the prevailing customer price levels. He accepted. Everybody won...but at what cost?
I lost respect for the customer, and didn't feel too well about how we had manipulated the deal. I later rationalized that (a) we had not "gouged" him but rather won the sale at prevailing prices, and (b) I later by renegotiated the happy customer's renewal rate to align with my company's updated pricing practices - - which, by the way, had subsequently been modified to include discounting. The customer was not over-charged, nor did they under-pay, in the long run. The manipulation required to attain that result, however, was not worthwhile - but it demonstrates the type of backstage manipulation that occurs.
Thanks for the great comment Ed.
Discounting has been utilized heavily by the Restaurant Industry during the Great Recession as a way to keep guest coming in the door. To me operators are creating customer disloyalty since guest will just go where ever there is a bargain to eat vs. coming back for repeat business. Instead if operators worked on improving service and the whole guest experience, they would achieve guest loylaty and would not have to rely on couponing.
Jim Matorin
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