It’s often tempting to discount your way out of a stressful situation, but sometimes you’re doing more harm than good. Discounting is sometimes necessary…but often, it’s the biggest mistake you can make. How do you know when you’re in that situation?
Full disclosure here: I’m highly biased against discounting. My regular readers have gathered that I’m a pricing hawk, and my clients engage me because of it. Within the Miller Heiman Group network, value-based pricing was my differentiation. I’ve managed too many P&Ls to be comfortable with knee-jerk discounting behaviors I often see.
Just because discounting throws away profit dollars, is that any reason to call it suicidal? Maybe. Maybe not. There are good reasons to discount. We can go through those in another article if you want, but many times, dropping your price hurts more than this month’s/quarter’s/year’s financials. The pain of discount-trained customers lasts far beyond today’s closed deal celebration. Or, as mom used to say: “Just because you can, doesn’t mean you should”.
So, what are the signals that discounting is simply a crutch for poor selling/marketing? Here’s a checklist:
The Value is Already High Enough
Many customers think it’s good business practice to push back on price, no matter how satisfactory. For instance, sales professionals operating in Latin America tell me that aggressive price negotiation is standard business culture there. These negotiators aren’t looking for any particular number, they’re looking for capitulation. Convince them that there’s no money left on the table for them to win, and they’re done.
Another approach is to walk them through the value justification you’ve been building all through the discovery and proposal-building process. You know, the one you’ve validated with them and their co-workers. Remember, the one that builds a value case using the customer’s own monetary estimates? You have one of those, right? If not, consider the value of adopting one. How many discount dollars (remember, discount dollars = profit dollars) did you give up last year? Compare that amount to the cost of implementing a methodology which would have captured those profit dollars. How many more digits in the first number? So…why are we not talking?
You Don’t Know Your Value
I once worked for a company whose culture practiced “if Sales can’t articulate value, Product can’t discuss pricing”. This company had enshrined value-based pricing as a pillar of the company culture. Nothing moved for an opportunity until everyone knew what value the customer perceived from our offer. Once value was known, nothing stood in our way when delivering that value.
In contrast, I recently worked with company in the middle of a company-driven sales force turnover. The outgoing salesforce was known for building value and never discounting. Clients would routinely recoup the entire investment in under two months (some as slow as six – still a 200% 1st year ROI). Once clients believed such results were achievable for them, price was unimportant. The incoming sales people and weren’t equipped to articulate and validate customer value. As a result, neither buyer nor seller knew the value of the offer. Discounting became rampant and steep, and EBIDTA shrank to “shameful”.
If your sales people can’t validate value monetarily with a customer, they aren’t equipped to have a price discussion. When they are thus disadvantaged, of coursethey’ll want to discount their way out of trouble. This outcome is only partially the sales person’s fault. Leadership holds majority responsibility in providing tools to prevent it.
You’ve Sold Too Narrowly
Has your sales strategy engaged all affected personas? Chances are that they have not. Even sales methodologies who teach engaging “all” personas, ignore out-of-normal-scope “optional” personas–who could yield additional value. We intuitively shun the decision complexity of adding personas, without strategically adding personas who are natural allies. Sometimes adding people amounts to “packing the court in your favor”.
I regularly engage with clients who engage too narrowly. Customers build a group buying decision dynamic around the organizational silo/department who has budget. Too often, sales people follow this definition of “buying team”, ignoring all of the other silos who benefit from their offer. Business acumen would guide sellers to expand the buying ecosystem advantageously.
If a sales strategy hasn’t built value broadly in a prospect organization, there may not be enough value to support desired pricing. Look at it another way. Your company invested resources producing customer value, but your sales approach failed to leverage all available value into pricing. If you can’t charge for the value you produce, how sustainable is your business?
You’ve Sold Too Shallowly
Building some value with a buying persona is good. Building more value is better. I have yet to encounter a methodology that doesn’t allowsellers to add more value drivers into the mix. I have also yet to encounter a methodology that equipssales people all of the value drivers to add.
Your sellers are probably able to sell more value to existing personas. They often don’t have the business acumen, product training, or selling tools to sell full value. If your customer hasn’t built full value in their own mind, the internal math doesn’t check out. They might think “the value is too low”, but say “your price is too high”. Those two are the same thing.
You’ve Crippled Your Offer.
I once had a client who loved to pare down first opportunities into net-new clients. The idea was to win a low-risk first engagement, then grow from proven results. This is the familiar “land and expand” strategy. Unfortunately, these first engagements were so narrowed that compelling results were almost impossible to achieve.
Designing the value out of an offer to make it easier to swallow traps the seller into discounting a low-value offer. Worse, it establishes low value for all future “expand” opportunities. This could easily be “suicide by discounting”.
If your business involves follow-on sales, discounting the entry offer is extremely dangerous; you need a convincing “trial basis, then full price” story. You also need the initial offer to prove “full price value”; think “full value delivery at small scale”, not “low sticker price”. Predefined criteria for success should also be part of the equation; force a customer to measure value.
The Road to Failure is Paved with Discounted Sales.
I love building profitable businesses. Not opportunistic gouging profits, but real, win-win, value-based profits. I love helping clients do the same thing.
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To your success!