March 15th, 2021
The Big Drop is a Big Flop
I want to begin by stating that this blog post is not an assault on companies who utilize price breaks or discounts as an incentive to close a deal. There is no question that homeowners respond to advertised discounts or incentives to “buy now.” However, the issue that is negatively affecting many companies is what is referred to as the “big drop.”
Historically, this practice dates back to the late 1940s and early 1950s, when, in an effort to sell in the home, companies would offer discounts—traditionally 10% off of the quoted price—in order to consummate sales. Back then, the average roof replacement sold for $350 to $500, while siding ranged from $1,200 to $2,000. The stated discount was believable and represented a reasonable incentive to the homeowner. For example, a siding job initially quoted at $1,600 would frequently yield a $160 (10%) discount, which was greater than most individuals’ weekly pay.
Fast forward to today, when product offerings to homeowners include: a $35,000 sunroom or basement, a $15,000 siding job or a $10,000-$20,000 window replacement project. When multiple discounts ranging from $3,000 to $8,000 (or more) are extended to close a deal, the in-home sales process begins to resemble the way automobiles are sold—with little or no credibility to the quoted price.
If you are a proponent of a “big drop” selling style, you need only review the manner in which you get rescission (cancellations). The most frequent reason that is given is the price of the project. If the customer believes your net price is too high, they certainly didn’t believe the list price was reliable. Now, consider the number of people you don’t close because the abundant discounts offered don’t seem credible.
When the list price is validated and the customer sees value in the product versus the price, the incentive offered has reliability. A frequent reason for salespeople relying on the “big drop” is because the value wasn’t sold. If you offer a bonus or discount as an incentive in your advertising, this price reduction is dealt with soon after you quote the list price. The net sales price is then validated by your prospect. Under this scenario, a “buy tonight discount,” which can be anywhere from 3% to 5%, makes sense.
It is critical that owners, managers and salespeople understand the difference between the “big drop” and advertised discounts. The first is presented because the salesperson believes they have no other option available in order to close the sale, and it gives no credibility to the value of your product/service or the stated price. On the other hand, the latter is an excellent method to build rapid revenue over a short period of time.
Review the manner in which your in-home presentations are made and how the value of your product/service is being established. Once this happens, a “big drop” is replaced with an initial presentation incentive, which will increase your closes and diminish your rescission.