There’s a good article in the Harvard Business School’s Working Knowledge newsletter about using concessions effectively that everyone involved in setting, managing, or enforcing discounts should read. Author Deepak Malhotra provides four strategies for making concessions.
- Label your concessions– make sure people know that they’re getting one.
- Demand and define reciprocity
- Make contingent concessions
- Make concessions in installments because the psychological impact can be greater.
Perhaps the most striking strategy is #3. In theory, all of our discounts (price concessions) are contingent. Volume discounts, prompt payment discounts, promotional rebates, bundle discounts and other concessions involve the customer doing something for us, and in return, us doing something for the customer (lowering the price). In practice, many companies do not hold their customers to their side of the bargain. We may choose to honor a price negotiated for a regular order for a rush order as well. We may not check if proper volume levels are actually ordered to honor volume discounts based on quoted committments. This sets up a vicious cycle of lower prices and lower brand expectations, because customers do not have to pay for rush delivery or small orders. We rarely value goods when we don’t have to pay for them.