Yesterday that I asked this question on Twitter:
Why is the price of IT assets different for every customers ? Why do we barter & haggle over pricing ?
— EtherealMind (@etherealmind) April 3, 2016
Today, Jean-Louis Gassée at Monday Note writes:
As we saw it at the time, the accepted practice of volume discounts was the first step on the Road To Perdition. Big retailers would order large quantities of computers at a reduced price and then rather than using their fat margins to hire and train competent sales and service organizations, they would cut the price tag of the product in order to drive out the competition. They would sell Apple products the way hypermarchés sold yoghourts.
Smaller retailers would get killed, squeezed between discounting competitors and their higher product cost. And yet, those smaller retailers were the most enthusiastic, the most competent promoters of Apple machines, always willing to spend an extra hour to explain the product, to answer questions after the sale, to provide personalized service.
We resolved to go against standard practice and enforced uniform pricing: No quantity discount.
This is strikingly similar to whats happening to product resellers today. Here is how I see the scenario:
- Big resellers use their pricing advantage to sell cheap and win deals instead of investing in expertise and services. They have access to credit and preferential accouting terms.
- Small resellers struggle to survive, unable to invest in services and expertise.
- Customers get a poor outcome due to low expertise and knowledge.
Vendors don’t want to change the channel model because thats disruptive. It would also be innovative if every reseller was competing equally.
Pricing can be the same at any outlet, even in a capitalist social framework. The post demonstrates that there are negative financial incentives for offering volumes discounts.
The feudalistic process of endless haggling and bartering costs a lot of money in resources spent chasing quotes and having meetings. Often more than the product is worth. And the same for vendors who have to hire, fire and sustain vast numbers of low productivity workers. i.e sales people don’t create products or value, they simply manage the delivery channel.