Introduction
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.
I can think of three scenarios where it is required:
- 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 face to reality
and sell your products at a price the market will bear, or you won't sell
very much at all.
-
As a token concession to close the deal. I don't see a problem with "rewarding"
a buyer for signing an order within your timeframe, 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.
- When
you haven't done an adequate job of selling the unique business value your
product or service will provide the customer. My clients will tell you I am
never happy in a situation like this, but if you've not done the best selling
job, and there is some room for a discount, and you need the deal, discounting
may be better than losing the deal on principal.
How Do You Avoid Discounting?
I
talk a lot in my book, How Winners Sell, about the fact that to succeed
in business to business sales today, you must sell business improvement, not
products or services. That means differentiating yourself from your competition
in the unique value you, your products and services, and your company can provide
toward your customer achieving their corporate, divisional, business unit, department,
or government 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, 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, and are not
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.
Scenario
You
know your competition is going to come in with a substantial discount, as they
have before. Therefore, your sales effort must include
- Assuring
yourself that the customer is not making a decision solely or primarily on
price. This question must be asked again and again of key decision makers.
-
Getting agreement from the real buyer that you understand their business objectives
and that your offering can help them achieve those objectives. This method
does not work unless you are dealing with the real buyer.
- Finding
unique areas of additional value (on top of their existing requirements) that
you can provide through the capabilities of your product or service offering.
- Management
support for potentially selling part of your offering now, and the rest later
on, rather than selling the whole thing at a discounted price.
In
cases where you know your competitors will be discounting, you'll need to offer
several investment options to your customer. Alan Weiss, the consultant's consultant,
suggests providing three opportunities for them to say yes.
If
you offer your prospect three options to buy—let's say for the sake of labels,
Platinum, Gold, and Silver—and you've done a good job of selling the business
value of your offering—you can avoid having to concede more than a nominal discount.
Your
plan here should be not to discount, but rather to back value out of your proposal
to meet the prospect's desired investment level. Presenting three options lets
you do exactly that. The customer gets to determine how much they want to invest
and will enjoy the resulting ROI associated with that level of investment.
Here
are the three options:
The
Platinum Option
- Gets
customers what they need (and want)
- Highest level
of investment. You might ask for a 1030 percent premium over the Gold level
for this option, depending on the value you believe you can deliver to the
customer.
- All the features,
modules, components, capabilities available
- Your best resources
- Quickest time
to value
- Priority service—A
special 800 number, top of the queue, 24 x 7 x 365
- The highest
ROI
- Other perks,
such as quarterly meetings with your CEO, special invitation events, input
into your product development plans
The
Gold Option
- Gets
the customer all of what they need (and a few wants)
-
Budgeted level of investment. This is aimed right at the prospect's budget
level.
-
Most or many of the features, modules, components, capabilities
-
Proven, talented and dependable resources
-
Quick time to value
-
An attractive ROI
-
Other perks, such as quarterly meetings with your VP of Service, special invitation
events
When
your prospect tells you your competition has come in with a very low price,
you discuss calmly with them the fact that you have an option (the Silver option)
that will provide them with what they need at a competitive price. You will
already have differentiated yourself from the competition in a number of areas:
understanding the customer's business, industry, opportunities, challenges,
competitive, and customer pressures, and have built rapport with the real buyer.
In addition, you've professionally educated your prospect on the risks that
befall companies who depend on tactical discounting to win. (See my July 2003
article, How
to Outsell a Competitor Who Slashes Their Price to Win.)
What
will the customer do? The may tell you they want your Platinum option at the
Silver price. If you've done an effective job selling the business value of
your product or service and built a relationship with the real buyer based upon
trust, you can look them in they eye and tell them it just isn't possible. What
will they do then? My clients tell me that more often than not, they'll go for
the Gold or Platinum option.