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Big Sale, This Weekend Only! Avoiding the Trap of Discounts
I have been fascinated by psychological pricing techniques from the time I was a little kid. I couldn’t understand why things were sold in odd prices, i.e., some dollar domination plus 99 cents. The theory is that certain prices have a psychological impact and that items priced this way are perceived to be significantly lower than they actually. Does this strategy really work? I find it hilarious looking at homes on the market that use the same technique. There are literally million dollar homes that are discounted by a dollar. Apparently to many that makes a difference.
In recent years I have fallen in love with the constant sales at Jos A Bank and Men’s Warehouse (which have since merged). Every weekend there is some insane sale, especially at Jos A Bank, “Buy one get 3 suits free. This weekend only!” The sale each weekend is some variant of the massive sale offered the weekend before. Apparently the company is phasing out this technique, but nevertheless, every time I see or hear a similar advertisement I can’t help but laugh. (It reminds me of this funny Jerry Seinfeld clip where he describes these types of ploys.) There are plenty of other examples of this sort of marketing technique (think car dealers and furniture stores). But I wonder if there are actually people who think they are getting some crazy once-in-a-lifetime deal when it comes to these sales. Well it turns out there are. They’re called general counsels (GCs).
Of course that last statement is a bit tongue in cheek. But I’ve had too many discussions with GCs who demonstrate their obsession with discounts. During one, I was advising a GC on the choice between two law firms that appeared to be on equal footing. In one scenario the firm was offering rates when blended would amount to $450/hr. In the other scenario the firm was offering a more substantial discount (about 30%) on their rates but even with that discount the blended rate would amount to $515/hr. It is important to remember that these are two firms and lawyers the GC found to be equitable. Which firm did the GC go with? I assume you guessed correctly. The discount obsession can be so pervasive that it defies simple math.
This sort of discount obsession hit home with me last weekend as I attended the CFO/COO conference in NYC. I was speaking to a CFO of a regional law firm who pitched an all-in price to a top client, but without significant discounts to their rates. They were put against another firm from a higher rate city who discounted their rates so significantly that even though the all-in price for the engagement was still higher, the GC decided to go with that “highly discounted” price. This decision was not based on abilities or experience or anything else. All it came down to was how much of a discount the GC could get. It seems that showing your bosses “what a deal” you are getting is more important than the bottom line and quality.
I certainly hope these incidents occur only in pockets, but I do know they happen enough that law firms are adopting these strategies in their pitches. If I am a partner with a rate of $500/hr., why not just mark it up to $2000 (or $1999.99) and always offer a 75% discount? Take it to another level and make it a “once-in-a-lifetime offer”…only by once in a lifetime you actually mean all the time. It is no different than the marketing model that Jos A bank employed.
For all of the GCs out there that are falling into this trap, my advice is to look at the overall cost and how you can provide the best service to your company at the appropriate price.
I still wonder how Jos A Bank could get so many folks to buy into their marketing ploys…perhaps they were selling lots of suits to GCs (kidding…kind of.)
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