DISCOUNTING — DO IT? DON’T DO IT?

May 2006, Art World News

Discounting on price is a retail gallery or frame shop is a hot button in any season, but particularly so when things get a little tough. With business rockin’ along, looking back over one’s monthly receipts and tripping over that one deal where you nearly gave away the store is only a minor annoyance. “Oh, well,” we think, “at least I got my money out of it.”

When things aren’t so great, that same deal can be a panic button. We know that even though we sold it for more than we paid for it, or slightly over our break-even number, we also know that if we don’t make a substantial gross margin of profit on each sale, we’re still working backwards once we factor in fixed expenses, payroll and everything else.

So, yes discounting is a hot button. Whenever I do my public art sales seminar and at the end I invite questions or comments, they almost always involve the dreaded “D” word.

WHAT IS DISCOUNTING?

May I please remind the reader that what follows is only my opinion? (I know there are those who will disagree with me on some of this and that is what qualifies this as an editorial...)

So, what is discounting? What does a discount look like, exactly?

A much more fruitful approach to that question might be to first consider what discounting is not:

• Discounting is NOT the activity of selling something for less
• Discounting is NOT a gesture of good will
• Discounting is NOT a way to buy friends and influence people (read: keep your good customer)
• Discounting is NOT a strategic method for staying abreast of the competition

So, what is it, then?

• Discounting IS the basis on which a customer satisfies his or her mind that she is not a fool
• Discounting IS a query on behalf of your customers that what they are purchasing from you has VALUE
• Discounting IS a surefire method of ensuring the eventual demise of your business

HOW DID IT GET STARTED?

I think discounting goes way back.

Like, back to Adam & Eve. I can see Satan sidling up to Eve and hissing:

“SSSsssssay, Misssssy, want an apple?”
To which Eve probably replied, “Well, if I get one for Adam, too, can I get a better price?”

In my first book, “A Manual for Art Sales” I discussed—or more accurately, complained about—the issue of customers asking us for discounts. I’m not sure why people have come to believe that negotiating discounts on art and framing is a more acceptable activity than negotiating better prices on medical checkups or home repairs. But it doesn’t matter. The fact of the matter is, that’s what a lot of our customers think. And we have to deal with it.

Notwithstanding those companies whose business model is structured on the discount (ones that even have the word in the title of the company), discounting can be one of those things that we do in secret. Almost as an embarrassment. I’ve found that a dealer will discount when:

• S/he is desperate
• S/he has come up against someone who is better at negotiating
• S/he thinks it’s the only way to do business in his or her area
• S/he is afraid of losing a sale

But really, (in my opinion) here is what is so:

NO ONE WANTS TO DISCOUNT

No one really wants to discount. I think most of us will agree that discounting sullies the art, the reputation of the gallery and the artist and it creates a relationship with a customer that will never be what it once was.

WHY DO THE CUSTOMERS WANT DISCOUNTS?

There are many, many different spins on why people jam us for discounts. I’ve met many powerful businessmen and women over the years, who just love the chase. They relish the negotiations almost more than they do the art. And to them, it’s a cat and mouse game that they will willingly play with you.

Many years ago, as a gallery director in Las Vegas, I had a customer with whom I was involved in intense negotiations on a very expensive work of art. We went back and forth for almost half an hour. I went in and out of the viewing room repeatedly, not getting much closer each time, but neither of us choosing to walk away, either. Finally, the customer—a very powerful and compelling guy—sent his wife and the other salesperson out of the room and said,
“Okay, Bingham, we’re two grand apart. Let’s flip for it.”
“Pardon me?” I said, mouth open.
“Heads you give it to me at the price I want, tails I’ll take it at sticker. Not even your current number. The full retail. Whattya say?”
I couldn’t believe it. We were talking about the difference of two thousand dollars! I gulped.
For some reason, I said okay. We flipped. He lost.
He loved it. He laughed uproariously as he started peeling off one hundred dollar bills from a bankroll the size of a hockey puck.
It wasn’t the money. It was the game. The risk. To him, it made the deal exciting and the art worthwhile. And I’m sure you’re thinking that this incident could only occur in a gallery in Las Vegas. Nope, no way. To one degree or another, that dynamic occurs in galleries across America every day.

It was that incident that got me to thinking about the long term affects to discounting as well as the immediate short term causes.

SO, WHAT IS IT REALLY ABOUT?

Bearing in mind that there are at least four different personality types that you are likely to encounter in your gallery or frame shop and three of them are art buyers. It stands to reason that one out of three people who begin jamming you for a discount are going to be doing it because of the chase and not necessarily the art.

So what is it really about?

• MONEY?
• POWER?
• CURIOSITY?
• SELF ESTEEM?
• THE GAME?

Here (in my opinion) is what true more often than not:

<center> IT’S RARELY ABOUT
THE MONEY

So, if you go with my on this for a moment, and accept that it’s not about the money, why do we insist on getting down there and doing battle with the customer on the “money” battlefield?”

HOW DOES IT AFFECT MY BUSINESS

It’s not difficult to gauge the long term effect of continual discounting. All one has to do is talk to a few dealers who are no longer in business.

Here are some of the issues I’ve noted over the last 25 years in being in the art game:
• Once you sell a customer at a discount, you sell that customer at a discount for ever more, along with all of his friends and neighbors
• Once you get known as a gallery for frame shop that will discount, the word gets around (like a brush fire)
• The 90/10 Margins rule. If you give up a ten percent gross margin of profit it feels like you made a sale. It feels like you made a profit. The problem is that everyone makes money except you. That transaction still represents a line item on your P&L. And in retail, if you’re not working at least at Keystone Margins or better, you’re working backwards.
• “Profit doesn’t mean a thing if you can’t pay your bills...” I borrowed that from Jay Goltz’s terrific book, “The Street Smart Entrepreneur” who points that out many of the ‘discounters’ in his area who at one time gave him fits are no longer around. But he is....

HOW DOES DISCOUNTING AFFECT THE ART BUSINESS?

Why is the art business one that is known for discounting? I don’t know. I suppose it has something to do with art being a discretionary item.

Here are some points to consider:
• Value is what people want and what they test us on (by asking for discounts).
• How can we establish value if we’re all inclined to test it ourselves?
• How can we ensure the staying power of the artist’s career (and hence our industry and our businesses) if we are continually undermine it by casting a question as to value of the product?
• Are art dealers going the way of...lawyers?
• Are we expected to go on a Crusade?!

Sure it’s easy for me to write about discounting and blithely throw around some concepts that make an argument for why it’s a bad thing. I’m not running your business, I’m not faced with your commission ledger and lease and overages at the end of the month. I’m quick to acknowledge that. We do what we have to do.

But I think that the overriding concept here is that the better we get at deflecting discounting, or at the least, reducing the frequency of it, the better our businesses will be in many different areas.

Next month: Part Two: Handling and deflecting the discounting situation.

Todd Bingham is a sales trainer and consultant to the art and framing business who, when pressed, will admit to being a recovering discounter. In cooperation with Art World News he has written six books on the subject of selling art. This article was excerpted from one of 11 short journals he has written on various selected topics facing the art and framing dealer. For more visit: www.toddbinghamfineart.com, or call 800.697.8935