Unfortunately, we’ve hit the second wave of COVID-19. Here’s wishing you, your families and your colleagues are safe and healthy. I like the clarity that comes with hindsight. Now’s a great time to look back at some of the business strategies we either initiated (or considered initiating) way back at the beginning of the pandemic. It feels like it was just yesterday and 10 years ago, all at the same time. We were all thinking on the fly — trying to keep our people safe, our customers engaged and our businesses open. It felt like flying an F-16 fighter jet at Mach 2, 10 feet off the ground while leaning out the window trying to change the engine. I know I made some mistakes, and I’m sure you did too.
One interesting strategy I heard espoused by more than one of the knowledgeable sales leadership voices was that sales teams should be using this time to focus on strengthening long-term relationships with customers. It seems like sound and logical advice that’s always applicable. My issue is many of these people were suggesting the pathway to achieving this was through doing things for free or at no margin. The underlying assumption is that when the world returns to normalcy, these customers would forever remember the things we did to help them out, which would pay back two-fold in the future.
While I was apathetic to this advice six months ago, I realize now that I’m in complete disagreement with the “free to build a relationship strategy,” regardless of whether we’re in a pandemic or not.
I’ll caveat this by saying sometimes people need help, and as humans, we should always be willing to help others in need; that’s not what I’m referring to here. As people, we should use our individual good fortune to help lift those around us. Linearly applying this logic to a business perspective is where the trouble begins.
When we give something to a customer for free, we’re really doing two things: We’re helping another company at the expense of our company, and we’re hoping (consciously or subconsciously) that doing this will leverage the very powerful psychological principal of reciprocity. Here are three reasons that’s a bad idea:
1. The value people place on things is strongly correlated to price.
In every facet of our lives as consumers, we associate price and scarcity with quality. It’s human nature. When someone offers us something for free, we all automatically presume it is of lower quality. Is this what you want your brand and your company’s work association to be?
If a mechanic offered to fix my car for free, my gut reaction is that they don’t know what they’re doing and are using me to practice, or that they will mess up the job royally. As a consumer, I don’t want things for free; I want good value. It’s a dangerously slippery slope to assume that value and price are the same things.
Let me generalize for a second. As an industry, we have long struggled to establish the importance of our professional integrators’ value. Too many customers already perceive what we do as a commodity. Do we really want to throw gasoline on that already smoldering fire?
2. Seventy percent(ish) of the economy is based on consumer spending.
I don’t want to delve into economic theory here, but the gist of it is our economy is dependent on people (consumers) spending to keep it going. These people need jobs (income) to spend. If we give things away for free or at no margin, our company is at a higher risk of needing to furlough more people because we don’t have sufficient revenue. Fewer people working = less consumer spending = bad for the economy. As the adage goes, better to teach a man to fish than give it to him for free.
3. Free establishes a dangerous precedent.
Once you’ve established the lower boundary for something, it’s almost impossible to pull that back up again.
Imagine you’ve been doing AV system design and deployment work for a national customer; over the past five years, you’ve deployed 10 to 20 $10,000 huddle rooms per quarter, a nice little business with a great customer. Now, because of the pandemic, you decide that you’re going to help your customer out by doing some stuff for free and reducing your margin. Easy math, let’s say you’re now deploying these rooms for $7,500, and your margin went from 30 gross profit to 5 GP. How significant a budget impact do you think the $2,500 savings will be for this customer? I’d postulate that it’s irrelevant with all the much larger and more impactful items they have in their budget to worry about.
The more significant mistake is assuming that once the economy has returned to normal, you’ll be able to go back to selling these rooms for $10,000. History, economic theory and every business in the world has shown us that it’s extraordinarily unlikely you’ll be able to raise your price again. Setting a lower price boundary is not something to be taken lightly.
So, what do I suggest we do? We must realize that our existence is based on our ability to provide value to a customer; that’s it. It’s a fatal flaw to assume that what a customer needed from us 10, five or even one year ago is the same thing they need from us today. Too many of us are doing the same thing we did two years ago and doing it the same way because “it worked then.” We need to figure out what works now. Free is a crutch — the easy path — something that masks the challenges we face in the market; it’s the effortless answer. However, the easy answer is rarely the right one.
Now is the time to become more deeply engrained in understanding our customers and what they need. We need to be able to bring value to their business and help them achieve their business objectives. That’s something that a customer will always value and will be willing to pay for.