Have you noticed how our shopping culture has changed in the last decade? Maybe it's because of the economic downturn in 2008 or maybe it's just a natural shift that's been happening, but everyone, and I mean everyone, seems to be slashing their prices.
There are even multi-million dollar businesses that have built their organizations around the concept of discounting. Take Groupon for example. While the person who signs up to receive those daily “deals” might not be thinking of it as a discount, but rather a special package or promotion, in reality, they’re purchasing a product / service at a lower price, making it a discount.
Discounts are all around us, and as consumers, we’ve started to be conditioned to not purchase unless we’re getting a great deal.
Why Offer a Discount?
Aside from the fact that it’s now just commonplace to offer a discount, there are strategic reasons (at least the companies think they’re strategic) why organizations choose to cut their prices.
Honestly, at the very highest level, discounting makes sense from a marketing and sales perspective, especially when you're in a slump. You're attracting a slew of new customers to your company, who you might not have ever found before. And you’re encouraging them to buy by offering them a deal.
Circling back to Groupon, someone might get a deal for his or her local Ethiopian restaurant. They see that email, think to themselves, “Hey, I’ve never really thought about trying Ethiopian food, but this picture looks good, so why not give it a try?” Bam! You’ve gotten yourself a new customer through your door.
And while that may sound like the most brilliant strategy in the world, we’re here to show you that discounting can actually hurt your business in the long run. In today’s post you’ll gain insight into how discounting can actually hinder you from closing the sale.
Discounting in the B2B Space
Before we get into the tactical reasons why you shouldn’t be discounting in your business, we want to just take a minute and shed some light on the fact that discounting doesn’t just affect the B2C industry. While the examples above are focused on B2C buying relationships, so often you also find B2B companies offering discounts on their products / services as well. It’s important to understand that this isn’t just a B2C epidemic, it’s everywhere.
Discounting in the B2B space happens much the same way as it does for B2C companies. Let’s use a software company as an example. They’re trying to sell their software to high-tech startups (let’s say it’s project management software), and they’re having trouble closing their sales. Instead of focusing on other aspects of the product (which we’ll get to in a minute), they immediately jump to the price. They offer a 15% off discount for all new customers. Guess what they see? A spike in sales!
Awesome! Fantastic! Yes! They’ve done it right. But...then what? Where the real problem lies isn't with generating the new customers and sales, it's what that discount in price represents. Here are six reasons why you should never discount your products / services.
1) Lack of Confidence
When you’re offering a discount on your product, what is that saying to your prospect? It’s saying that you don’t believe enough in what you’re selling that you think you can sell it for the standard price. You’re showing your cards, and proving that you have a weak hand. 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, wholeheartedly, to sell to them. Confidence is a game changer, so when you’ve lost that, you’ve most likely losing the sale.
2) Bad Precedent
When you offer a discount, whether it’s the first engagement or the fifth engagement, there’s no going back. As soon as you lower your price, your customer will expect to see the same thing next time. Or, they’ll hold out until you offer another “special”. And most likely, they won’t purchase without it. And while a discount may seem like that’s your only option, it’s not. You don’t want to set the precedent that every time your customer buys from you, it’s at a discounted price. That’s just bad business.
3) Lower Perceived Value
Most people value something based on it’s price. But as a salesperson it is your job to sell the value of your product or service in other ways. You’re not going to say that your product is the best because it’s the most expensive, right? No (well, I hope not anyway).
You haven’t done your job (effectively at least), if you haven’t demonstrated to your prospect that what you’re selling can truly add value to their life. If you go in with a discount in hand, you’re trashing that value and throwing it out the window. And while they still might buy from you, they’re not going to place as much value on it as they most likely would have before.
This point is especially true when you’re in the middle of the sale, and things start to get sticky. You’ve already laid out the proposal, telling your prospect that this is your standard pricing package and the very best that you can do for them. As the conversation continues to spiral downwards, you realize you’re going to lose out on the sale. What do you do? Offer a discount, of course!
While your prospect might be thrilled at the time to get a lower price, in the back of their mind they’re also saying, “Wait, but they already told me this is the very best they could do and now they’re offering me a discount? What else haven’t they been honest about?” You’re stirring up questions that should never be there in the first place. And even if this particular deal goes through, you’ve set the stage for questions and mistrust in future engagements.
5) The "Price" Conversation
The last thing you want in a sales conversation is to have the conversation focused on price. And that’s just 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 more painless. And in the long run, it’s hard to sell something based on it’s price than on it’s value.
6) The Profit Cuts
It’s hard to run a successful business. And with the ever-increasing competition, it’s even more important that you hold onto as much profit as you can. As a business, if you discount by 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. Do you have the time or the manpower to do that?
The same is true for an individual salesperson. When you’re offering your prospect a discount, you're going to have to sell a whole lot more in order to meet your monthly quotas. While this might not necessarily affect your current sale, think about what it means for your workload, which in turns affects your ability to sell effectively. You're going to be stressed, rushed, and very driven to just move onto the next sale because you’re always playing catch up.
Prospects can feel (and I can assure you) that it scares them away. If you're not spending the proper amount of time with each of your prospects, then you're going to have a much harder time closing that sale - making you even more stressed and rushed. It's the never-ending cycle, that all leads back to that very first discount.
What to do Instead
Great, now we can see how discounting can negatively impact our business and cause more pain than it may be worth. But what methods can we leverage that will still help us close the sale without slashing our prices? We’ve got four tips for you to try in your next sales meeting.
1) Focus on value
This should be your 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 to focus on other parts of their job. Maybe you’re making their payroll process more efficient and cost-effective. Whatever it is that you do, focus on how working with your organization will make their life better in some way.
2) Know your target audience
Another given, but you might be surprised how many organizations do not truly understand their target audience. What do they struggle with? What are their goals? What does their day-to-day look like? Those are important questions that you need to know when marketing and selling.
It will help you position yourself in a way that makes what you’re selling a no-brainer. Price isn’t even an issue because you’ve successfully shown that what you have can solve their problems. It’s been said before, but you should be able to understand and communicate your prospects’ challenges better than they can themselves. If you can do this, this tactic alone will help you win a sale.
3) Show your confidence
Most salespeople are confident, right? It kind of comes with the territory. But if you don’t fully stand behind what you’re selling, it will show. I can promise you that.
It’s essential that you exude confidence (not to be confused with arrogance) when you’re in a sales meeting, not only in yourself but also in your business and your product / service. Excitement is infectious, so when your prospect can see how excited you are, they’ll get excited too. And that is precisely the reaction that you’re looking for.
4) Prove that what you’re selling works
It’s the same idea behind social proof, but it’s important to have back up for what you’re selling. You want to show that what you’re telling them on the phone, will actually come true and make 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 and prove you deliver measurable results. People tend to believe in numbers.
And there you have it: a deep-dive into why you discounting can be damaging to your business and actually keep you from closing the sale. We hope you found this post helpful, and hope that it has inspired you to make some changes in your own selling process. We’d love to hear what you think, so leave us a comment below, sharing some of your own selling strategies!