By Terry Hockenhull
The practice of asking for discounts is normal in the Philippines. Indeed, the practice is so well entrenched that clients fully expect a discount to be given as a matter of goodwill. In turn, salesmen invariably have pre-considered discounted prices in order to readily accede to clients' “requests.” Essentially what this means is that a product that should cost P100 will be proffered to the client for P110. As soon as the client asks for the discount, the “real” price of P100 is agreed to. Everyone leaves happy, so what’s the problem?
Although it costs the salesman nothing to accede to the request, it sets a precedent for clients to ask for a discount even when there is no built-in margin for it. It also suggests to the client that prices have been jacked up to accommodate a discount. And, of course, for future sales, the client will often look for an even bigger discount.
Is it really necessary to allow discounting of prices? Well, when one considers that retailers with fixed overheads (such as department stores and mall outlets) rarely if ever accede to discount requests, it would seem to suggest that this practice, providing it is made quite clear that prices are fixed, need not exist. I sometimes think that it is the willingness to “give in” to requests for a discount that create the customer’s haggling mentality.
Most salesmen are more than happy to accommodate a client provided they can close the sale. This is what they commonly refer to as negotiation. I would suggest that this is mere bargaining on the part of the customer. Let’s look at a small price concession as a goodwill discount. Providing it is in the range of 5 to 10 percent, it is probably acceptable to agree to it. However, goodwill discounts should only be offered or given after the client’s agreement for the purchase--not as an incentive for his business. There is a world of difference between the client who asks, “Sure, we'll go ahead with this. Any chance of a discount?” and the potential buyer who says, “I'm willing to buy but only if you will drop your price by 10 percent.” And perhaps worse, the situation where the client states clearly that he will not buy and the salesman then offers ten percent as an inducement.
Sales executives from one of Manila’s leading 5-star hotels told me that matching other hotels' rates would win them business that might otherwise be lost. Early on in the sales call, they ask the customer to disclose the rate paid for the hotel they presently use. With a degree of flexibility on rates (no one pays rack rates, do they?), they happily undercut a competitor’s rate just to win the business. A statement from one employee was a little disturbing. She said, “The client doesn't really care where they book their seminars and conferences provided that the price is right!" What is so wrong with this statement is that clients really do care. However, if the salesman is lazy and fails to sell the very specific (and valuable) features of their product or services, one can hardly blame the client for considering all vendors' products as equal.
To put this into perspective, a car is a car. All have an engine, four wheels, brakes, etc. So why buy a Mercedes-Benz when you can have a subcompact for less than a quarter of the price? Because, obviously, all cars aren't alike. Safety, prestige, appearance, furnishings, features and of course performance are some of the factors that may justify a premium price tag for those who can afford it. However, when choosing which dealership to buy your car from, it makes sense to consider price. A Toyota Corolla from Manila Bay or Shaw Boulevard is the exact same car. One can hardly blame the buyer from choosing to buy from the vendor who offers the biggest discount!
But beware: even here there may be differences that need to be brought to a client’s attention. Established and appointed agents and dealers of quality products complain that parallel imports flood the market at significantly lower prices. These products are offered at a lower price because the importer doesn't invest in a spare parts inventory or trained service personnel. It is the job of the salesmen to make sure the client is aware of this and understands the need to pay a premium for product support.
Suppliers of goods and services do their homework. They determine market value taking demand, availability, profit margins, competitors' costs and other factors into account. The figure they arrive at should be one that the average customer is prepared to pay. Thus, the willingness of the salesman to lower prices has a direct cost (loss) to his company, with nothing gained in return.
I recall talking to a young Filipino salesman who was looking for a job. He told me he had been working for a Japanese company selling construction equipment and admitted he was seeking another position because his company’s products cost considerably more than competitors' and he was unable to close sales. He agreed that his company offered premium equipment, an excellent spare part inventory and the best levels of service in the industry. Nonetheless, when facing a client, he failed to sell those features, even though they are very important to an industrial buyer. In the mind of his customers, the product was exactly the same as his competitors--so why pay a premium?
There are times when it is appropriate to negotiate a sale. Offer discounts, by all means, but make sure that you get something in return. For example, a client asking for a price concession on equipment might be offered one provided he is willing to sign an annual service contract. Sometimes, discounts can be offered in exchange for repeat business or a guarantee of future orders.
Offering large discounts simply to close a sale can backfire badly. Established clients who learn a new client is being offered a lower price have every right to feel abused and cheated. One time-share company offered their units in Boracay at 50% discount to the first person signing up. Is this a good promotion? Certainly not. As a potential customer, my immediate thought was that the units were obviously overpriced. And if this was not the case, I realized that if I subsequently bought, I would be subsidizing someone else’s purchase.
So in general, vendors should fix their prices. If for promotional purposes they do discount goods or services, they should offer the same discount to everyone. If the company does give a salesman the flexibility to offer a discount to certain customers, it should always be awarded after he has done everything he can to sell the product at the original price. Then the discount should be negotiated with something in return for the vendor. And when discounts are given to clients, invoices should reflect the full price, together with the awarded discount. This reminds the client he was lucky enough to secure a discount on this one occasion and avoids the danger of the client objecting to the original price on subsequent purchases.
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Author Bio: Terence Hockenhull is president of Charteris Consulting, Inc., a Philippine-based consultancy that conducts seminars throughout South East Asia. In addition to his role as a program designer and accredited training facilitator for the American Management Association, Mr. Hockenhull designs, develops and delivers sales training programs for Nissan Motor Company in the Caribbean, Middle East and Asia Pacific. Contact him at terryh@skyinet.net.
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