What are the right circumstances to discount the price? Before your next sales opportunity get’s to the pricing questions, here are four to help you construct how to proceed.
You wouldn’t sell a $300,000 house for $250,000. Or would you? So, why do we feel pressured to offer an obligatory discount on our valuable products and services?
Here are a few observations I’ve made as to the cause of unnecessary discounting:
- We believe buyers are only interested in price
- We’re afraid that the prospect won’t buy if we don’t discount
- We do not value or believe in the products or services that we sell
Professional selling is about determining the right buyer’s perception of value, and then effectively aligning your solution with it. As salespeople, if we qualify the buyer, ask questions to determine objectives, and clearly outline on-target solutions, we move to demonstrate the value of our product or service and the price associated with it.
In some instances, discounting can be a strategy that leads to increased revenue, satisfied return customers, and under certain conditions, can increase a buyer’s perception of value and likelihood of referral. Buyers want a deal and if you make it happen, it can reap unexpected rewards. In other instances it’s not. In fact, it can be a disadvantage to discount.
So, how do you know when to discount and when to hold the line on price? Here are four questions to answer:
1. What is your company’s policy on discounting?
In some industries, an automatic expectation of a discount exists. Without a company standard for discounting, assumptions might be made about how deep to discount. A policy on pricing and margins, communicated throughout the sales organization and other affected departments, will get everyone on the same page. Know what it is and be sure to ask questions if something is not clear.
2. What is the volume of product/service being purchased?
Where is the line on discounting when it comes to volume or length of contract? In some cases, volume is conditional on the scalability of a product or service. Not all organizations can scale their offerings in order to offer discounts. But, in general, higher volume = discount and longer contract = discount. You have to know what those are in order to maintain your margins.
3. When will you offer the discount?
In retail scenarios, we all know that offering a discount up front can motivate a buyer to make a purchase. We see big “Sale” signs drawing us into the store as we pass by. The strategy is to dangle high-value with low prices and then move us into a sales once we’re in the store. In the B2B sales process, leading with a markdown really focuses the conversation on product and price (tangibles), rather than solving business problems and achieving objectives (tangible and intangible). This can quickly diminish a prospect’s perceptions of value seeing your offerings as a commodity with almost no differentiation except price. Hold off on discounting until you get all the facts.
4. How will discounting affect the buyer’s perception of you?
The value of your role as a trusted advisor, consultant, or expert can get tarnished when offering to discount too quickly. It’s difficult to sell on value once you’ve positioned yourself as a low price seller or a sales rep who is quick to discount in order to make a sale.
You teach your customers how to buy from you. Don’t teach them that when you show up, all they have to do is press you on your price and you’ll drop it every time.