Always be careful with pricing models and the impact of discretionary price reductions. What you want is for Johnny Sales Representative and Bobby Sales Representative to each be able to visit Mrs. Jones separately, price the same job, and come up with the same price for that job (subject, of course, to errors in measurement).
Off this list price would come any discounts, rebates, coupons, or sales.
“In-home” price negotiation is workable, but it should be minimal (perhaps no more than 5% to 10% of the job) — unless you can logically explain how it occurs. It's best to allow the sales representative to negotiate down from the list price by cutting his or her commission. By structuring pricing in this manner you can defend why, exactly, Mrs. Smith bought precisely the same casement window as Mrs. Jones but paid $300 less, for example.
Better Than Advertising? Problems arise when you have a high list price that you rarely sell at and a vastly different net sales price for the same products, based solely on how tough a negotiator the consumer is. Another trouble spot is when the sales representative's commission is set as a percentage of the total job, without any thresholds, thus giving the sales rep the incentive to overprice the job.
A first-night-close discount is acceptable if you can show internal records establishing that the costs of a job increase if you have to return to close the deal. Yet, for a first-night-close discount to really be legitimate, you can't just come back on the second night with the same product at the same price. If you do that, then the first-night-close discount is a tough argument to back up.
To substantiate the first-night-close discount, you must be able to justify how you are able to offer a lower job price on the second visit. You may wish to do that through a “rehash” line, where you offer the consumer a slightly different product — or the same product if you can justify a reduced price (due, for instance, to a longer installation delay or a reduced warranty). — D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the representation of contractors and the home improvement industry. He may be reached at firstname.lastname@example.org.
This article is for informational purposes only and should not be construed as legal advice.