Why getting a good deal isn't all about price

Focus too hard on the bottom line and you'll create a false economy.

by Alastair Dryburgh
Last Updated: 25 May 2017

The key selling point of many a new product or service is price. But as a customer the first question we should ask is not 'How much does it cost?' but rather 'What does it do?'.

Take all those online operators that want to disrupt the estate agency business. They'll sell your property for a very modest fixed fee, saving you the grief and expense of dealing with those greedy sharks, traditional estate agents.

But if you are selling a property, don't you want some greedy sharks acting on your behalf? Someone who spends all day, every day selling properties, something you only do a few times in your life? The greedy sharks might get a better price, and more than pay for their higher commission.

Another example: Someone I know once had to recruit a lot of software developers in a hurry. His HR department had done a deal with a recruitment agency whereby, in exchange for exclusivity, it would charge only 15% commission, rather than the usual 20%. For the numbers of staff he was going to recruit, this discount looked like a significant saving. Except that it wasn't, because it meant that he never saw the best candidates. The agency was never going to send its best people, the ones who could walk into any job, to a firm where they would generate 5% less commission.

Third example: You are in dispute with someone, and need to instruct a lawyer. You have a choice of two firms. Firm A charges £300 per hour, whereas firm B charges £500. Many people would choose firm A. But say that firm A spends 1,000 hours preparing a court case which you lose, whereas firm B take 100 hours to negotiate an advantageous settlement out of court. Not such a no-brainer now, is it?

The problem is the widespread but often mistaken assumption that such services are commodities; they are all the same so that we only need to compare the price. Comparing prices is easy, comparing value is much harder. But that's no reason for not doing it.

Alastair Dryburgh is the leading authority on strategies for overcoming the obstacles to growth. 

Tags:

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today