To Discount or Not to Discount?
Are you or your salespeople discounting to win business?
This is a common problem that I’ve observed with a lot of clients that I have worked with.
What causes this problem?
There are many reasons.
Firstly, there is the pressure we put on ourselves to win the business.
Secondly, there is the pressure that the Customer/Client will put on us to drop our prices.
This comes about because we haven’t created enough value for the buyer for them to justify paying what we are asking.
All of us as Buyers are essentially running a business case inside our heads – do the Benefits outweigh the Costs? We do this calculation on a daily basis in our personal lives and in more complex situations in our business lives.
The critical key for the Seller is – have we identified for the customer/client what the problem is that needs to be solved and what the upside value would be if they actually had that problem solved?
For example, on a $10,000 sale with a 10% discount of $1,000 – it may not seem like we are giving too much money away. The problem is that this $1,000 comes straight out of the bottom line of the business – hence significantly impacting the businesses profits.
Let me share with you an example, I was talking with a client of mine Mark who is the National Sales Manager of a Financial Services firm. Mark was telling me about a meeting that he had been having with a client and they talked about problems the client was experiencing in his business and about future opportunities in that business.
At the end of the meeting Mark asked the Client “When the account manager comes to see you what does he talk to you about?”
The Client said all he talks to me about is his products, he adds no value to my business and because of that I just drill him on price.
Hence the Account Manager drops his prices and discounts and caves in to the pressure from the Client – which was actually caused by ineffective selling skills on the part of the Account Manager.
One of the implications of discounting is that it creates a habit in the mind of the buyer to constantly ask for a discount.
This will cost a business thousands and millions of dollars over the lifetime value of the customer.
There are many ways to decrease discounting – some are simple and some are more sophisticated.
If you would like to explore these further, then let’s discuss your business and the specific challenges that you are experiencing to identify ways in which you can protect your pricing and margins.