August 6, 2013
Last minute discounting has become so prevalent that many companies have come to depend on it as their default sales strategy. Employing a go-to-market strategy of being the lowest cost provider is one thing, but dramatic, tactical discounting on every deal will erode your company’s margins and leave you digging a deeper and deeper hole in which your company will ultimately bury itself.
I don’t want to give you the impression that discounting is never appropriate. Here are three scenarios where it may be required:
1. When a company has mispriced their offering.
Let’s face it. Times have changed.Competition is fierce. And yes, as much as we don’t like to admit it, prices and fees have been forced down in some markets. If everyone else is now selling what you sell for $1.00 and you’re still selling it, just as you always have, for $2.00, and you can’t prove you can deliver a dollar’s worth of additional value for the customer, your pricing is too high—way too high. Call it a discount, or call it a price adjustment, in this situation you’ve got to face reality and sell your products at a price the market will bear, or you won’t sell very much at all.
2. As a token concession to close the deal.
I don’t see a problem with “rewarding” a buyer for signing an order within your required time frame, for example. Understand, I would much rather provide other concessions that don’t cost my company money and don’t educate my customer that whenever I am going to ask them for an order, I am going to give up part of my margin and commission. But, I do live in the real world and understand that for my clients, pricing concessions are sometimes required to get the deal signed.
3. When you haven’t done an adequate job of selling the unique business value your product or service will provide the customer.
I am never happy hearing about situations like this, but if you’ve not done the best selling job, there is some room in your pricing model for a discount, and you need the deal, discounting may be better than losing the deal on principal.
Of course your risks are not only reducing margins to get this deal done, but you’ve educated the customer that they can get a discount when you are under the gun.
How do you avoid discounting?
To succeed in B2B sales today, you must sell business improvement, not products or services. That means differentiating yourself from your competition through the unique value you, your products and services, and your company can provide toward your customer achieving their corporate, divisional, business unit, department, or governmental agency goals.
Have you transitioned into the mode of creating customer demand by targeting accounts—getting in before they know they have a need, and establishing yourself as a knowledgeable, trusted, and patient advisor? If not, you’ll continue to be on the receiving end of all sorts of one-sided customer demands, mostly taking the form of answering requests for information, doing presentations, demonstrations, free trials, fighting the constant battle against having your offering commoditized by the customer and being on the receiving end of strong demands for discounts.
We’ve been taught over the years to bundle our products and services where possible to provide the customer with a single investment number. That way, we were told, they can’t nickel and dime you, and can’t slice up your offering, able to say no to pieces they don’t want or need. But, now times have changed and when you think about it, that’s exactly what you want to do.
If you sell products or services that can be componentized, sold in pieces or modules, or in phases, you’re potentially in good shape.
Check back next week for Part 2 on how to back value out of your proposal!
Dave Stein, CEO and Founder, ES Research Group, Inc.