Prices Slashed!

Hurry, Hurry! Step right up!

Coupons line mailboxes, newspapers and the edges of web pages. Please spend money. Please buy. You will be saving 20% if you buy today. Buy One, Get One Free. This Friday only, our doors will be open at 5am. A FREE 30-day trial. Buy two boxes of Lucky Charms and get a free gallon of milk. A Blow-Out Sale this weekend only. Buy two and the third is half off. Club Savings available today, are you a member?

There was a discussion some months back regarding lowering fees in order to keep clients/customers. To offer a recessional cushion. To entice new clients. To solicit new customers. To lure former patrons back to your door. I wonder how many gave into that temptation, forgetting the old adage, "you get what you pay for." Does lowering prices/fees cheapen the work or degrade the experience that is brought to the table?

Several years and conferences ago, a direct competitor exhibited two aisles over from the booth where our search firm was stationed. A potential client walked casually into our booth with a flyer from our competitor. Executive Retained Search - Full Services, $5000 off regular fee. $5000 off! I was shocked, our Managing Director was dismayed. Both boutique search firms vying for the same clients. But they were only two employees strong, we were five. We couldn't compete with those prices, how could we? Not only that but it was degrading, to charge so little for full-cycle direct recruiting. Unfortunately and ultimately, the work is only worth what someone will pay for it.

We didn't lower our prices that year, as a matter of fact, within three months, we raised them $2500. And had no problem getting clients to sign on the line. Perceived value and received value. Yes, you do get what you pay for. It was cut-throat back then. Times were tough but they weren't even near what they have been for the last two years. You have to be scrappier now, more innovative. You can't just put a flier together and drop your prices or raise them.

I think both of those firms are still around. Although, I have no idea how they have faired the foul weather. Human Resources, it's such a cush job, eh? Recruiting, just makin' a few calls every day. Sourcing, just type in a string, darlin' - it's all in the wrist and tone of voice. Closing. How many are closers? Said it before, I'll say it again: this ain't for the faint. It is a value-driven proposition. What are you driving?

© by rayannethorn

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Permalink Reply by Maureen Sharib on January 8, 2010 at 4:19am

Raising prices when others are slashing isn't such a bad idea.

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Permalink Reply by Mark Waschek on January 8, 2010 at 11:12am

I agree 100%.

We have raised our fees to all new clients in a market where others are reducing theirs. This has not hurt our activity one bit. In fact, it's helped. While others are decreasing in volume, we have been able to maintian our activity and gain increased profits as a result! The old saying "perception is reality" holds true here. If I'm at 30% fee while others are dropping to 20%, perception is that I must do it better - otherwise I'd be crazy to charge tht much!

We do quite a few things different than our competitors. And, as a result, we need to get paid for it. However, if we were to drop our price, all that says is that they were paying too much before, and our added service is no better than the standard service they get from others.

To succeed in this economy, you need to be different, prove your value, and be a market leader. Lowering fees doesn't fit anywhere in this equation.

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Permalink Reply by Brian Meeks on January 8, 2010 at 11:29am

I just purchased a bunch of woodworking DVDs that I have been wanting for some time. An email showed up in my box yesterday and the Taunton Press was running a sale. 50% off and I was powerless to resist. I guess I am the reason that sales happen and people continue to use email marketing. It is my fault...I am sorry.

In all seriousness though, I do think that whether raising or lowering prices, one needs to carefully analyze their current business capacity. If one has enough clients to keep them busy, then their prices are probably correct. If they have too many customers, then their prices are too low, or they need to add capacity. If they have a lot of excess capacity, then it might be worth trying lowering prices for a time. I feel like one needs to try to focus on maximizing throughput, and if that is done, then the rest will work itself out.

I am reminded of the stock photography industry. It use to be that a stock photo would cost hundreds of dollars and few people were in the field. Today they cost $1.00, and there are tens of thousands of photographers contributing. May of the old line Getty photographers have refuesed to change with the times, and have seen their revenue plummett. Some of them have adopted and are making more money. It doesn't matter if you get $1.00 per photo or $300 per photo, what matters is your total throughput. The ones that realized selling 1000 copies at $1.00 was superior to selling 2 at $300, they are thriving.

So I don't have an answer, I just know that one needs to be careful in making price change decisions. I would suggest discussing it with someone who has a background in Theory of Constraints, as they will likely be able to help clarify the situation, or at the very least read 'The Goal' by Eli Goldratt. It will definitely change the way you analyze business situations.

I am not affiliated with Eli Goldratt in any way. I just like his stuff. I am more than happy to talk with anyone who has questions though.