February 27, 2017

“Why would you get the project if someone bid £20,000 less?”

Reader Peter Brady (actually his real name!) wrote in to ask:

Hi Jonathan,

Big fan of your work and your message. Just one thing that’s been bothering me, if you don’t mind me asking. I’ll use a real world example to help me articulate it, if you don’t mind.

I can go into a shop and either buy a Coca Cola for £1 or a Rola-Cola for 19p. If I buy the Rola-Cola, I know what I’m getting - a cheaper version of a Coke. Whereas, if I splash out £1 on a proper Coke, I expect a Coke.

But say for instance, Coca-Cola begins putting Rola-Cola inside their cans but charging the same price, I would probably experience what you call “inequity aversion” and I would think Coca Cola were being immoral.

Transposing that example into the kind of work I do.

Say I quote a client (based on value) £25,000 to build them a website. Then somebody else quotes that client £5,000 (based on their costs). I get the job but deliver the exact same value as what the other person would have provided, isn’t that just like Coca Cola putting Rola Cola in their cans and charging the same price? Or does the magic lie in differentiating the offering?

Again, I love your message - just this part I’m struggling with.

Many thanks, Pete.

Great question! Thanks, Pete.

In the cola example, the company is actively trying to deceive the buyer, in which case one could argue that it is indeed immoral.

(On the other hand, bottled water exists at different prices. Same recipe, different prices. Is that immoral? But I digress...)

Let’s focus on this specific passage:

Say I quote a client (based on value) £25,000 to build them a website. Then somebody else quotes that client £5,000 (based on their costs). I get the job but deliver the exact same value as what the other person would have provided, isn’t that just like Coca Cola putting Rola Cola in their cans and charging the same price?

No, I don’t think it’s the same thing. The analogy is flawed because it compares a service to a product. There’s WAY more risk in picking a software partner than in choosing one soda over another.

Ask yourself this:

“Why would you get the project if someone bid £20,000 less?”

Possible answers:

They trust you more
They prefer your communication style
They prefer your process
They don’t want to “cheap out” on a mission critical project
You have big name clients in your portfolio
You stand behind your work
You offer a satisfaction guarantee
You can deliver faster

In choosing a service provider - especially for something like a software development project that requires ongoing collaboration - the buyer weighs many factors in their decision beyond the raw bottom line. Furthermore, there’s no way for them to try both services in a scenario like this. They have to pick one and run with it. There are many reasons why a client would choose a more expensive option.

Hope that helps!

Yours,

—J