It’s not surprising or uncommon for buyers and customers to ask for a discount on your offerings. If you look from the perspective of a customer, there could be several reasons to ask for better pricing: insufficient funds, lack of perceived value, better quotes from competitors, etc. After all, everyone likes to get the best possible deal. However, when sales representatives and companies agree to a lower price, it opens the door to a veritable Pandora’s Box of so many problems that could easily put your business at risk and could possibly put you out of business.
While offering discounts may seem like a reasonable way to help a new brand attract new business, the reality is that decreasing your price can easily kill business growth.
Before we dig into the tactical reasons why you shouldn’t be giving discounts with your offerings, we want to first shed some light on the truth that discounting doesn’t only affect the B2C industry, even the B2B industry is affected by it and you’ll also find many B2B businesses giving discounts on their offerings. It’s critical to understand that offering discounts isn’t just a B2B industry epidemic, it’s everywhere.
Discounting in the [email protected] industry happens very much the same way as it does in the B2C industry. Let’s take the example of a software company. The company is trying to sell its project management software to high-tech startups, and they’re facing challenges while closing the deals. So, instead of focusing on other aspects of their software solution, they quickly jump to its pricing. And they decide to offer a 20% discount to all of their new customers. They quickly see a spike in their sales.
Great! They have done it perfectly. But…what now? The real problem doesn’t lie in closing deals and getting new customers, it’s what giving a discount on the offering represents.
The following are the top reasons why you should never give a discount on any of your offerings.
Whether it’s the first engagement or the fifth engagement, there just no going back when you give a discount on your offerings. The moment you offer a discount, your customers will expect to see the same thing next time, and the time after that. Or, your customer can hold out until you offer a discount or another “special offer.” And it’s highly like that won’t buy without the discount or that “special offer.” While offering a discount may seem like your only option, well it’s not. You don’t want to set the precedent as such that every time a customer purchases your offering, it’s a discounted item. That’s just bad business, plain and simple.
It creates an expectation of future discounting:
Offering discounts is a very bad position for any company. When more and more customers in your industry learn about your discounting practices, it only gets worse as the expected pricing for those new customers is with a discount. And since your discounts offered earlier on your offerings have set the bar much low on the perception of value, why should they pay more for your offering? Would you? Giving discounts on your offering doesn’t just set a bad precedent, but also undermines any future opportunity to maximize your profit margin.
It complicates your business dealings:
When you offer discounts to some and not to others. The reason for this could be many, maybe they didn’t push as hard for it, or maybe you thought they would buy even without the discount or maybe something else entirely. However, you suddenly started to operate under different structures for the same solution with the same level of service. Multiple pricing levels for the same solution with the same level of service can create administrative nightmares and internal chaos, especially in bigger companies having a large customer base.
It demonstrates a lack of confidence and erodes trust:
This goes back straight to the idea of product or service value. Even if your customers don’t automatically value your offering as much you would want, when you start to offer discounts, it shows that you don’t actually believe your value proposition either. Your customers eventually sense your lack of confidence and question two things: first, is this solution as good as I thought if they are willing to sell at a lower price? And second, Can I really trust this person who wants me to buy a discounted item.
When you offer a discount, your customers quickly lose confidence in you and also sees that you don’t actually stand behind what you’re trying to sell them. It’s like showing your cards, and proving that you have a weak hand. Confidence is a game-changer and when you lose it, you’re very likely to lose the sale.
It squeezes your profit margin unnecessarily:
It is quite obvious that when you sell your offerings at its full price, your profit margin will be higher compared to when you sell your offerings at a discounted price. Conversely, the loss in profit that you get by offering discounts has to be recovered in the future with other opportunities, causing you to put much more sales efforts and close more deals at a higher price to compensate for the profit loss.
It forces you to cut corners:
To maintain necessary profit margins after selling your offerings at a discounted price, it will inevitably prove very tempting to find new ways to lower the cost of your offerings, either by cutting material costs or reducing the aspect of activities associated with servicing the customer account. Although it is a great idea to find new and effective ways to operate efficiently, if you feel forced to unreasonably or unnaturally lower the cost of your offerings, you could easily cross the line where your perceived value takes yet another hit.
Too much emphasis on price:
When you start to give a discount on your offerings, your primary focus is on the price rather than your offerings. Your company is in huge trouble if the only competitive advantage you have is the price. You need to rely more on service levels and quality to survive and thrive in today’s consumer-centric economy as price-matching has become quite a commonplace these days.
Creates the wrong impression:
As a company when you offer discounts to your customers you’re taking a huge risk of devaluing your own offerings. Your customers can easily get the impression that the offering being sold isn’t worth paying full price for. Additionally, it also sets a precedent in your customer’s mind that the pricing of your offerings isn’t firm.
Lower perceived value:
Most customers value an offering based on its price. And as a sales representative, it is your job to sell your offerings on its value in effective ways. You’re not going to say to your customers that your offering is the best as it’s the most expensive in the market, right? We sincerely hope, not.
You are not doing your job, at least not well enough, if you don’t demonstrate it to your customers that your offerings can really add value to their personal or professional life. And if you’re going to your customers with a discount in your hand, you’re trashing that value and throwing it away. While they may still buy from you, at least for now, they won’t place as much value in your offering as they most likely would have before.
Giving discounts on your offerings could easily result in price wars with your competitors, and the bigger companies almost always win these wars as they have the strong financial backing to stick with it the longest. For a company trying to get just get off the ground, this is a fight you don’t want to start or enter.
The profit cuts:
It’s hard to run a successful company, very hard. And it’s even more important that you hold onto as much profit as you can with the ever-increasing competition. As a company, when you give a discount on your offerings by 50%, what would that do to your sales? Now you’re going to have to sell twice as much in order to hit your same revenue goal. Do you have the manpower or time to do that?
The same is also true for an individual sales representative. You’re going to have to sell a whole lot more when you offer a discount to your customers, in order to meet your monthly or quarterly quotas. While this may not affect your current capabilities or current sales, just think about what it would do to your workload, which as a result affects your ability to successfully close deals. You’re going to be rushed, stressed, and driven just to move onto the next sale as you always have play catch up with your customers.
Customers can feel it and it scares them away. If you’re not spending enough time engaging with each of your prospects and customers, you’re going to face a much difficult time closing the sale with them, leaving you even more rushed and stressed out. It’s a never-ending cycle, which all leads back to that very first discount.
Negative impact on profits:
If your competitors match their price with your discounted pricing, not only will you be left with less profit, but you’ll still be expected to deliver quality services at the discounted price. Or the worst, when your competitors are in a financially strong position and choose to hold the line on the lower pricing, you can enter into a permanent stage with reduced profits.
Negative impact on quality:
Giving discounts on your offerings can result in a challenging situation where your company will have no other choice, other than to sell much more in a short period of time. This can soon result in lower quality to get everything done on time. The lower the quality, the higher are the chances of the company to earn a bad reputation and lose its credibility.
For product-focused businesses that sell their product at a discounted price, there’s a huge risk: your customers might purchase as much as they can at the discounted price, as long as it lasts. After that, not only will you have to scurry to deliver such huge amount of product, but this easily affect your future profits negatively as your most customers won’t need to purchase, once you pull away from the offered discount
So far, we’ve outlined and explained how giving a discount on your offerings can negatively affect your company and cause problems then it may be worth it. But what are the strategies and methods you can incorporate that will help your company to successfully close the deals without cutting the price? Read on the following tips;
Know your target audience:
You may be surprised when you learn that many companies do not actually understand their target audience. What are their goals? What do they really struggle with? What does their day-to-day look like? These are some very critical questions you need to know when marketing and selling your offerings.
It will help your company by a lot to position itself in a way that makes your offerings a no-brainer. Price isn’t even an issue as you’ve successfully demonstrated how your offering can solve their problems and can also add value to their current infrastructure. Although, it been said before, over and over again, however you should able to understand and also communicate your prospect’s pain points along with the challenges they’re facing better than they can themselves. If you can successfully do this, this strategy alone will help you win many deals.
One of the best alternatives to offering discounts is to be clear, crystal clear, and confident while presenting your value proposition. It should ultimately be irrefutable that the customer will get an equitable return on their investment. It is reasonable for the prospect, in the course of reaching that awareness to offer objections, ask questions, and seek the best deal. This is all part of their due diligence as they represent their interests. However, if you can answer their questions and overcome their objections successfully without any hesitation, the value of your solution will become appreciated, and the quoted price will be supportable. Just remember that you have two choices while you’re trying to equalize value and price, so choose to raise value over lowering the price. You just won’t make more money and avoid a long-term, complicated problem, but your customers will also get what they paid for.
While it is quite reasonable for your customers to expect the best possible deal, giving discounts on your offerings creates several long-term problems for your company. Ultimately, these problems will affect your customer satisfaction, profit margin, increase customer churn tare, and your reputation so severely that they may threaten your entire business. So, use the alternatives methods to offering discounts and become stronger at eliminating unnecessary components from your solution to match the customer’s budget needs, showcasing your solution’s value, or walking away from a deal.