One of the biggest reasons I don’t like discounting is that it not only destroys the value proposition, it also attracts lousy customers.
Customers who are price driven are the same ones who are going to push you on everything else.
The problem is too many times the salesperson doesn’t realize until it’s too late. The general feeling is that discounting the price to get a sale is better than no sale at all.
Sounds simple, right? And it sounds like the only loss is in profit. The reality, though, is the loss is much bigger than just profit.
Once a customer knows they can push you to get a lower price, then they begin to think they can push you for other things, and this is where the situation can really start to spin out of control. The pushing winds up being a drain in so many different ways.
Typically, the pushing winds up being in additional services that not only take time but also resources. The result is the sale that was already discounted becomes even more discounted due to the additional work involved.
Some of you reading this are thinking the additional requests from the customer are merely ways to demonstrate great customer service , and that makes sense, but it comes at a cost. The additional cost winds up having little chance of paying off, because the customer never does come to accept the full price — even on future sales.
If your goal is to attract cheap customers, then by all means, discount your price.
If, on the other hand, you want to protect your bottom-line and, more importantly, keep your costs under control, then discounting is the last strategy you want to employ.
I will argue with anyone that building a business upon a discounting strategy is going to be painful in the short-term and the long-term. It’s simply not worth it!
Copyright 2013, Mark Hunter “The Sales Hunter.” Sales Motivation Blog.
Mark: I agree that there are risks vendors incur when discounting. And customers incur risks as well – though possibly more subtle ones. In a survey I read recently about IT outsourcing, the researchers found that customers of vendors that were receiving profit margins at or above target were significantly more satisfied with service delivery than those whose vendors were not achieving target margins. This suggests that customers that squeeze vendors for discounts and price concessions incur risks of poor service delivery. Unfortunately, some purchasing managers receive bonuses for negotiating such deals, and their user departments are left dealing with the consequences – an odd and decidedly unfair arrangement.
Where I differ with your idea about discounting is that price discounting is a highly-effective lever in responding to market pressures and opportunities. If market forces, supply & demand, remained were static, there would be diminished need to discount. The reality is that they don’t. So managers must make adjustments, and discounting is one of several ways. I recently wrote about this in a blog on CustomerThink, “Why Discounting Rocks.”
Definitely agree! Just yesterday, a friend running a business on Ebay was explaining to me the systematic pain she has dealing with buyers who are price sensitive on Ebay. For example, an item is listed for a fixed price on Ebay (not auction). A buyer loves it but tries to get a discount. On 99% of the times, this same buyer will try to find an imaginary flaw later when item is received. Moreover, the buyer will want to return it for no reasons (change-mind reason) and will want the seller to pay for return shipping fees. Of course, Ebay will 100% of the times give reason to the buyer et the seller looses three times (shipping in the first place, shipping back, and lost opportunity of sale to another buyer). While discussing the issue, we came up with the conclusion that it is not possible that this kind of buyers will systematically be dishonest! Another issue is raised here: willing to give a discount brings the value of the item down in the buyers view, therefore imaginary flaws appear to buyers of the sort (price sensitive buyers), so they will want to get rid of it and they know they can push and they will do so at 0 cost.