If you were going skydiving, one of the details you’d be most focused on was whether the parachute was properly packed. After all, the main goal in skydiving is landing safely, and having a parachute that works plays a big part in achieving that goal!
What if you had a few choices on who could pack your parachute? Packer A says, “I am FAA certified and the cost is $100.”
Packer B says, “I’m not FAA certified yet, but I’ve worked under the guidance of a certified packer for a while now so I know how to do it well. The cost is $100.”
You likely will go with Packer A, who is certified. Presumably, feeling comfortable that the packer has done the job properly is important to you. Using a certified packer gives you a greater sense of trust in the quality of the work.
But what if Packer B says, “Look, I know I’m not certified, so I am willing to give you a discount. I’ll charge you $75 instead of the $100 the other packer is asking for.” That’s a 25% savings! Would you take it?
Probably not, and it may even firm your resolve to go with Packer A. Being offered a discount may have struck you the wrong way. If trust in the quality of the packing is the most important interest for you, saving $25 is meaningless. Your primary interest is “trust,” and money doesn’t buy trust.
Yet, in many deals a service provider will make this exact mistake. A client is seeking help with a complex and critical technology issue and asks for proposals from multiple vendors. That client is going to make a choice based on one simple criterion: who is the least likely to screw up? Every question asked and every reference checked is in pursuit of risk aversion and choosing the least risky provider.
Ask any CIO who has been in this situation and they will tell you that the worst thing that can happen is they decide which company to use, and the service provider fails in the effort. That can be a career-limiting decision. After all, when a major project fails, no one comes back to the CIO and asks, “But did you get a good price?”
Nevertheless, many technology sales people will offer clients discounts “for the relationship.” And many procurement people will tell you that discounts do not do anything for the relationship, other than showing you’re willing to give money away for nothing in return. (The procurement term for that, by the way, is called “being a sucker.”)
This is why understanding the other party’s interests is so important to getting a good deal for them and for you. When focusing on value and outcomes, a price discount does reduce the price, but it also reduces the perception of the value and outcomes. You’ve just told the client you don’t value your own work enough to stand up for it. And if you do provide a discount, get something in return! “Business” is about exchanging value, not giving value away.
If you don’t stand up for your business, don’t expect the client to.
I agree, money cannot buy trust. If something is too cheap, it is better to pause and take a closer look. However, I would add that procurement organizations are often the ones that are driving towards lower cost and that many suppliers, therefore, compete on price. It takes a strong partnership within the client organization, between procurement and the department buying the services to find the right balance; a competitive price for what you need. In the example above, there could be third option at a higher price, where parachute was wrapped in silk which has not real impact on the service.