If you are going to discount: ‘Discount with dignity’

In Episode 748 (7 July 2020) of HBR’s Ideacast podcast (23.04), Curt Nickisch interviews Rafi Mohammed, founder of the consulting firm ‘Culture of Profit’, on the topic of ‘Pricing Strategies for Uncertain Times‘.

During the course of the conversation Nickisch states that with COVID-19 service/product providers will be under intense pressure from clients/customers to offer discounts, to which Mohammed replies:

Clearly, in the short-run, you have to offer a discount. And what I would be focused on is what I call discounting with dignity in a manner that doesn’t devalue your product in the long run. And so, that’s really important because once you set a low price, it’s very hard to recover when demand eventually does come back.

And so we turn to how this really important concept applies to law firms

Blind Freddy can tell you that clients are under intense pressure to cut costs. I doubt there is a CFO out there who has not phoned (or even Zoomed) his/her GC and told them to cut costs.

And I suspect there are few GCs out there who have not responded by calling, zooming or even emailing the law firms on their legal panel to tell them to reduce rates by X%.

And, having lived through the Asian Financial Crisis of 1997 and the GFC of 2008, I suspect there are few law firms partners who have not passed along this request to their Finance Department with a note to “make it happen“.

But if this sounds familiar, and if a law partner you know would or has done this (*because it is never us*), then you would be missing out on Mohammed’s very powerful ‘discount with dignity‘ concept.

Because, as much a I hate advocating or agreeing to discounts, Mohammed is right:-

If you offer a discount to customers/clients merely because we are going through turbulent (or should I be saying ‘unprecedented’ 🙂 ) times, then what you are really doing is devaluing your service/product in the long term.

Because what you are saying to your customer/client when you unconditionally agree to a discount request of this kind is that “you have been over paying me all this time” – I’m not really worth what you have been paying me.

A Suggested Alternative Approach

Much like scoping in Legal Project Management methodology, when it comes to discounting (and I’m realistic enough to know that there needs to be some consideration of discounting in current times), you need to be considering what you take out of the basket when you offer that discount.

Which is to say it isn’t a ‘like for like’ for less conversation – you don’t get the same for less. If you take 15% off, you take 15% out of the basket. And you look to alternatives to how that can be sourced – either in-house or some other way (including LPOs/ALSPs).

And, if it really does need to be ‘like for like, but for less’ then it needs to come with a risk sharing collar. For example, I will accept 80% of my fees, but if we get past COVID-19 and your share price returns to pre-COVID highs within 6 months of completing this deal, then you agree to pay me 120% of my fees.

And, in the very worst of scenarios, your invoice should include a line item that states the discount being given is a one-off COVID-19 discount (and Mark Stiving, of Impact Pricing, has an interesting thought on this issue).

Regardless of what it is, you do need to do something. You cannot standstill for less. Because we will get past COVID. And in the ‘new world’ (even if that is a world where we merely live with COVID) there will be a ‘new, new normal’. And if you have agreed to discount your rates now without taking anything out of the basket, then what you have actually done is recalibrated your value in the new world.

And you won’t recover from that.

As always, the above just represent my own thoughts and would love to hear your thoughts.

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This week’s photo credit is Chrissie Kremer on Unsplash

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