Our shopping culture has certainly changed in the last decade and practically everyone in retail seems to be slashing their prices constantly. Discounts are all around us, and, as consumers, we’ve started to be conditioned to not make a purchase unless we’re getting a great deal.
Also, when you're in a downturn, discounting makes sense from a marketing and sales perspective because you will hopefully attract a whole flock of new customers to your company by offering them a really good deal.
However, there's always a downside to discounting - and it could potentially hurt your business very badly.
Discounting in B2B
Discounting in B2B happens much the same way as it does for B2C companies. For example, a software company may be having problems closing their sales but instead of focusing on improving their product, they immediately leap to offer a 15% discount which initially does the trick with an improvement in sales.
That's great but then what? Just what does that discount represent? Here are six reasons why you should never discount your products or services.
1) It shows a lack of confidence
A discount is saying that you don’t believe enough in what you’re selling to sell at the normal price. As soon as you offer a discount, your prospect immediately loses confidence in you and sees that you don’t stand behind what you’re trying, in good faith, to sell to them.
Confidence is the ace up your sleeve, so when you’ve lost that, you’ve most likely lost the sale.
2) Sets a bad precedent
As soon as you offer a discount, there’s no going back and your customer will expect to see the same (or better) discount next time. Or, they’ll hold out until you offer another “special” price. It becomes a habit and, most likely, they won’t purchase without it in the future. If you believe that offering a discount is your only option, it's not.
3) Creates a lower perceived value
Most people value something based on its price but as a salesperson, it is your job to sell the value of your product or service in other ways.
You need to demonstrate to your prospect that what you’re selling can truly add value to their life. If you go straight in with a discounted price you’re destroying that value. Your prospect may still buy from you but they’re not going to place as much value on your product or service as they did previously.
4) Demonstrates inconsistency
Well, you've indicated to your prospect during the sales negotiations your standard prices and the very best you can do for them but he/she is still not budging and things start to get tricky.
As the conversation continues to take a nosedive, you realise you’re going to lose the sale so, what do you do? Yes, that's right, offer a discount!
Presumably your prospect will be pleased at the time to get a lower price but at the back of their mind they’re also thinking, “Hang on, they previously told me that was the very best they could do and now they’re offering me a discount? Is there anything else they haven’t been up-front about?” Even if this particular deal goes through, you’ve set the scene for questions and mistrust in future negotiations.
5) Focuses on price
The last thing you want in a sales conversation is to have the conversation focused on price - but that’s what happens when you offer a discount.
When the conversation is focused on price, it doesn’t give you room to talk about the other important things, like your prospects’ needs/business challenges and how your company is offering the ideal solution that will make their lives less painful. In the long run, it’s harder to sell something based on its price than on its value.
6) Eats into your profits
I don't need to emphasise the fact that it’s hard to run a successful business and with ever-increasing competition, it’s even more important that you hold onto as much profit as you can. If you discount by, say, 50%, what does that do to your sales? It means that in order to hit your same revenue goal, you’re going to have to sell twice as much.
Can you really afford to do that?
An individual salesperson is also going to have to sell a whole lot more in order to meet their monthly quotas and while this might not necessarily affect the current sale, it means an increased workload, which in turn affects their ability to sell effectively.
Your salespeople are going to be stressed, rushed, and very impelled to just move onto the next sale because they're always playing catch up.
If salespeople are not spending the proper amount of time with each of their prospects they may have a much harder time closing the sale, leading to even more stress. This unhappy state of affairs all leads back to that very first discount.
How To Ease The Pain
I hope I've demonstrated sufficiently above how discounting can negatively impact your business and cause more pain than it may be worth. So, what pricing strategies can we use that will help us close the sale without slashing our prices?
1) Focus on value
A number one priority, always. You need to focus on how your product or service can add value to your prospect’s business. Maybe it’s the fact that you’re helping to free up more time for them, making them more efficient or cost-effective. Whatever it is, focus on how buying your products or services will make their life better in some way.
2) Understand your target audience
What is it that they most struggle with? What are their goals? What does their day-to-day look like?
These are important questions that you need to ask because they will help you position yourself in a way that makes what you’re selling a walk in the park. Price doesn't become an issue if you’ve successfully understood their needs and communicated that what you are selling can solve their problems.
3) Show your confidence
You need to be able to fully stand behind what you are selling, be confident in your business and the product/service you are offering. Your enthusiasm should be infectious (without being overbearing).
4) Prove that what you’re selling works
It’s important to have support for what you’re selling. You need to show that what you’re telling your prospects on the phone or face to face will have a positive impact on their business.
This can come in the form of testimonials, case studies, or even videos of your current customers sharing how great your product/service is. Ideally, you might even have all three! Whenever possible, also make sure that these forms of proof include data points to prove you deliver measurable results. It should not all be about the price.
Pricing shouldn't hurt either you or the customer. Discounting can be damaging to your business and actually keep you from closing the sale - and customers should realise that what they are getting from you is a product or service worth splashing the cash for.
Priceless: The Hidden Psychology of Value by William Poundstone 2014
Pricing for Profit by Peter Hill, 2013
No B.S. Price Strategy by Dan S. Kennedy and Jason Marrs