You asked for discount…

Every so often you come across a client that expects you to deliver a phenomenal business concept on a shoe string budget, while all the time, their profits are on the increase. Then there are the clients that want to pay for your worth, but don’t necessarily have the budget to do so. These are two common problems faced in the creative industry… but how do you tackle these issues?

As a specialist in strategic concepts, branding, marketing and packaging, Design Simplified believes that we can work within a realistic client budget. For clients who appreciate the value in the proposal and budget presented, but don’t have the funds right away, we can work out a project plan that segments the campaign in bite-able sizes which then leads to building a brand. Using this solution has led to successful relationships and growth of revenue for both the client and our business.

This client is one that understands that brand value is important and long-lasting relationships have been built with clients such as these.

Below are some instances we have researched that speak to the topic of discount and the negative impact it could have on a business:

Inflated prices: Some agencies may inflate their prices with an expectation that the client will ask for a discount. The client may feel like they are getting a great discount, when they actually are paying full price.

Take the example of the T-shirt apparel industry. To create a branded T-shirt including shipping, transport, concept fees and store cost will amount to about $12. To manufacture the T, <$2 from factory and <$0.80 for printing. Branded T-shirt can range from $30 to $50, sold through the branded stores and online. Consumers can analyse the actual value once the product goes on sale.

The same can be said of an agency. You can see what the actual markup is for the project from inflated price to the standard industry markup which will range from 15% – 25% calculated on overheads. You may find that your initial price will be between 10% – 20% higher than the industry standard and when the prices are dropped the agency margin is in line with industry standard.

Ignorance: Most clients will go through a branding or marketing exercise for the first time. Below are two infographics; one on copy writing and the other on a branding process. Once the client understands the process, they can see the value and understand the cost.

Updated and amended by Design Simplified

Look at Pepsi, their advertising campaign caused their likability to drop from 44% in Aug 2016 to -6% in April 2017.

Source: https://adoreboard.com/pepsi-customer-perception/

A calculated guess suggests that it was more due to insufficient budget spent on research or an agency not understanding the consumer and culture of the brand.

This is why a research budget always needs to be included in a branding exercise. When a company is being exposed to the market, it is important to factor in the brand, the culture, the political environment it is trading in as well as the international exposure it can gain from social media. Needless to say a brand may fall, however big or small, before hitting a global market if this important factor is not understood.

Arrogance: There are particular clients that just do not want to pay for the true value of the work that needs to be done and they feel entitled to discounts. Having experienced this type of client first-hand, a discussion was had as to whether he would be willing to extend the discount on his services to his customers, I will leave you to guess the answer… Our take on this is that we are happy to discuss discounts but the client will have to decide which step of the project they are they willing to sacrifice to bring the price down.

A perfect example is the Samsung Note 7. Due to the drive for cost savings, Samsung decided on purchasing batteries from their South Korea plant and cutting corners with testing of the final product. This resulted in the smartphone giant having to recall and replace all the Note 7 batteries which cost more than the savings they gained from the exercise.

Source: http://uk.businessinsider.com/samsung-galaxy-note-7-recall-dead-chart-2016-10?r=US&IR=T

The shopper: This type of client is gathering information from various sources to make a more informed decision. It is important that a shopper must compare apples with apples as this is the only way to see the true value of what they’re getting for their Rand. Cases have shown that annually these clients put out the contract to renegotiate the prices to prevent price increases, which could potentially result in the brand losing its integrity as corners are being cut. The perfect example would be Nike, when they made a decision to move their shoe manufacturing to China and Indonesia in 1991 to save on costs, but because of bad working conditions and poor pay, the brand suffered majorly and is still trying to recover from this in 2017.

According to our experience, here is what you need to consider when choosing an agency:

• Demand transparency: An agency may give you a lot of jargon in a quote. A good agency will give you an understandable breakdown on costs. When it comes to a branding or marketing quote make sure that you have line item costings.
• Compare like-for-like: Many clients will ask a couple of agencies to supply quotes. Make sure that what you asked for and what you compare is exactly the same. Many times when it comes to the final product, you will find that the material used or the proposal will give less than asked for.
• Be realistic: Don’t ask the agency to set the budget, they will give you the golden egg. If you know what your budget is, tell the agency so that they can structure the work around the budget.
• Pay for the research: This is the most critical part of any branding, design or marketing project. You and your agency need to know where you are positioned right now in order to take it where you want to be. Our clients have had surprising outcomes that helped them from an internal as well as an external brand positioning perspective once they committed to paying for the research.
• Work with the right agency: If you know what your budget is and how far it must stretch look for an agency that matches that budget. You will find that the smaller agencies can give you the same service for a lesser cost meaning more service for your rand.
• Structure your cost: Don’t try and do everything upfront, this is an expensive outlay. Ask your agency to either supply a retainer cost or ask them to break the cost down in affordable project basis over a longer period of time.
• Don’t ask for a discount: If the agency is above board they will give you a realistic costing that will match your pocket. If you ask for that discount you will find that they will cut corners which will result in expensive mistakes.

Sources:

https://web.stanford.edu/class/e297c/trade_environment/wheeling/hnike.html

http://www.bbc.com/news/business-39810979

https://adoreboard.com/pepsi-customer-perception/

http://adage.com/article/cmo-strategy/marketers-time-a-closer-agency-spend/294236/

https://inhabitat.com/ecouterre/infographic-how-much-does-that-14-t-shirt-really-cost/

Cost of Quality: Not Only Failure Costs

https://www.bloomberg.com/news/articles/2016-09-04/samsung-s-note-7-recall-will-be-expensive-but-probably-worth-it