Don’t Teach Customers Bad Habits
It’s easier to cave in to requests for discounts, but think about the alternatives, says Peter Hill.
Pat your dog on the head and give him a treat when he returns the stick you threw, and he will very quickly associate that behaviour with a positive reaction and reward, and repeat it. If barking at the postman results in across look and a sharp tap on the nose, then he will learn not to do it.
Customers, and for that matter suppliers and employees,often behave in the same way. So, if we reward customers for the wrong things, they repeat this behaviour.
When your customer asks for a discount and you respond by taking off 10%, you are training them that ‘challenging’ the price receives a reward.
It’s worse than that, because caving in too easily with a 10% discount not only encourages them to keep asking, and perhaps push to 15% or 20%,but can make them think you were trying to ‘rip them off’ with an inflated price in the first place.
So how do we change this behaviour?What can you say in response to the discount request?
How about this response?
“No. Our prices are carefully calculated to be fair on our customers.” The use of the word fair makes it less money focussed, and research shows most respond that they felt they had to ask.
There are other answers beside a straightforward capitulation.
“I can’t do 10%but I can do 8.73%”. A very specific number on the headline price or the discount you give, makes it much more believable, and acceptable, to customers.
“I can’t give a discount, but I can give you 10% more quantity.” Giving £100 discount costs you £100, but giving £100 worth of extra goods probably only costs you £40 or £50.
“I can only give 10% discount if you pay up front, increase the order value to £x, or collect.” The ‘reward’ is not just for asking,but for improving the deal for you.
All these options avoid simply rewarding the customer for challenging the price.
Basic human behaviour means we all seek to avoid pain and pursue pleasure. Discounts are given too easily because we want to avoid the ‘pain’ of defending prices or having to haggle over details. If we are well prepared for the challenge, and have other ways to make the customer happy, then the customer can be retrained into better behaviour.
Most people will broadly do what you ask of them, if you satisfy three steps.
They need to know ‘why’. “If we keep giving big discounts, our profits will fall and the business cannot invest in people, technology and buildings to keep growing.”
There needs to be consequence (pain) for non-compliance from sales staff. “Giving discounts without discussing alternatives, will get a written warning.” Discounts can still be given, but only
after other options are discussed.
There should be reward (pleasure) for getting a better deal. “The salesperson with the lowest average discount will receive a cash bonus.”
If you want to retrain you customers, employees or suppliers, consider what behaviour you want to change. Answer the why question, and address the pleasure and pain issues. You may be amazed at how compliant people can be if handled properly.
Peter Hill is a director of chartered accountants and business advises, Mark Holt&Co.