Prices seem to be on the rise again after a few years of holding steady following the economic collapse of 2008. From food prices, to entertainment, to fuel, to housing, to this and that, everything seems to be on the uptick. If you’re like me, you’re thinking, “How can a guy get a break?”

Surely this must be a sign that the economy is on the rebound, no?

I’m not so certain about that. To me this feels more like the end of a suppressed marketplace, as though the vendors and suppliers responsible for holding prices level for so long, simply can’t continue the practice. They have bills to pay, too, which means prices will go up.

In fact, I’m amazed the pricing steady state lasted as long as it did. But with a long, cold winter in the northern states, various maladies hitting US cow and pig populations, and annual spring flooding and wildfires, something was bound to give. Heck, even the Feds can’t keep offering low-cost capital forever to keep prices down, can they?

Suppressed pricing can only last so long. At some point, the seller/producer begins to suffer, too, which isn’t good for anyone, not even if you’re the buyer enjoying a break on your costs. After all, if the person producing what you’re buying can’t afford to stay in business, where’s that leave you in the long run?

A couple of years ago, I touched on the topic of discounts and bargain-seeking, wondering what happens if/when a discount becomes too much of a good thing?

Here’s that blog again . . . and as always, your comments are welcome.

Pennywise, Pound Foolish

(Originally posted on May 2, 2012 )

Everyone likes to get a bargain, whether it’s on a big ticket item such as a new car, a great cut of meat, or some knick-knack at a rummage sale across town. But when does getting a great deal begin to back fire on you? Do you ever reach a point of diminishing returns?

I think so, especially when it comes to working with vendors/service providers on whom you rely for some critical component of your business.

Remember, all great deals come at the expense of someone else. When you ask vendors to discount their rates, donate free time, or simply “drop you a quick email,” there is an associated cost to them. (And I don’t know about you, but when one of my vendors sees my name pop up on caller ID or come through by email, I want them to be excited, not dreading the prospect of working together!)

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Most vendors I know are happy to offer discounted rates or knock hours off their bills to add value to a deal or to recognize the significance of a long-term, consistent business relationship. It’s how we do business at Barrel O’Monkeyz and it’s a win-win situation for all . . . as long as it’s fair. But at what point does the expectation that a vendor always has to give, give, give, become unfair?

Vendors and their families need to eat too, so do their employees and their families. You also want your vendors to stay in business. Think in terms of those companies who build and manage your Web site, or design and print your collateral materials, or provide the raw materials necessary to your manufacturing process, or bring your goods to market. What would happen if one or more of them went out of business? And what if they faltered because of the discount you demanded? What would its worth to you be then?

When the economy tanked in 2008, there were deals to be had. You might even have been able to get a vendor or service professional to kick in days, weeks, or months of “free” time or services so long as there was promise of value down the road. But seriously, how long could such a model sustain itself? Businesses on the receiving end of such great deals benefitted short-term, but long-term many vendors and service professionals simply ended up working for free with little or nothing to show for it. Worse yet, many ended up out of business . . . and in the long run that didn’t help anyone.

I am not saying you should never ask for or get discounts from your vendors. You should. It’s as American as banana pie (excuse the poetic license) and baseball (go Dodgers!). But the value proposition needs to work both ways. It needs to be fair. As the hiring business you need to get something out of it—presumably quality services or goods at a discounted rate—while the vendor/service professional needs to get something out of it, too, such as steady work at fees commensurate with the level of services/quality of goods provided.

It’s pretty simple really. At some point, if the discounts expected from vendors are too deep, it gets harder and harder for them to justify doing work/maintaining a business relationship with you. Think about it. If your customers/clients were to demand super deep discounts of you, how would you react? How long could you stay afloat?

Share your thoughts here.