Tuesday, December 27, 2005

discussion: the tao of pricing vs the te of discounting

One of the wonderful things about being a product marketing guy is being able to get my hands dirty with pricing. Especially this time of year, when the tao of pricing is accompanied by the te of discounting.

If you're not familiar with these concepts, go read the Tao of Pooh and the Te of Piglet entries over at Wikipedia. I'll wait until you come back. You may want to bounce over and read the entry for Taoism for extra credit.

Te - which I'll interpret here as signifying "virtue" - is a principle very diffferent than Tao - which I'll interpret here as signifying "the way".

I'm thinking about this because I just got the following request from sales: "a very important customer (ed: they're all very important, but let's not digress) has asked for a discount on product x amounting to our 'best price' for this particular product, even though they're not buying at the volume required to get this 'best price'."

Of course, "very important customers" are entitled to ask for discounts. Smart sales people are trained to remind such customers of the "value" of the products being sold, and to reiterate the "fairness" of the price vis-a-vis the value delivered. Welcome to Rug Merchant Haggling 101.

But for those folks who are actually charged with coming up with pricing, this transaction looks different. The way I see it, something is broken with pricing that creates friction. When faced with pricing that is out of phase with the market, one way to address it is discounting. This is not the optimal response, but sometimes the necessary one.

The preferred approach is to be aware of pricing at all times - to be constantly mindful of how the true value of your product is perceived by customers. If you are always watching pricing, it is a "way" - it lives - and living things are always more adaptable than dead ones. Customers respect pricing that makes sense, as do sales reps. They have enough problems without having to constantly explain broken pricing.

So when a customer requests a discount over and above what is described in your pricing, you are called upon to exercise virtue - to contemplate the value of this customer to your business, and to use the act of discounting to deepen your relationship, even at the expense of immediate gain.

(Coda: my response to the sales rep was to ask her to tell me more about this customer and our relationship with the customer. If we're going to extend them a discount, there must be value to it, and the granting of the discount must be interpreted as a sign of good intentions on our part - of virtue - of Te.)


Ed Kohler said...

It sounds like you took a good approach. Offering a discount without an attached benefit (eg. build relationship with customer, possible referrals, etc.) would simply erode your pricing. That would be particularly problematic if another customer found out about your discounting. What happens if another customer calls you out and you don't have an appropriate explanation for the discount?

bob said...

Exactly. It's all about the relationship. Without that, we're peddlers.