Do your salespeople discount … too much? Too often? Too quickly? Many companies answer these three questions: Yes! Yes! Yes!
For such a universal and blatant problem, why does it still happen? Why can’t salespeople just do their job and stop discounting?
The answer: it probably isn’t sales’ fault (completely). After all, they are just trying to close deals, to bring revenue into the company. Instead of blaming sales, here are four reasons that sales offers discounts that we may be able to address.
1. Our price really is too high
Sometimes we love our products so much, we put high price tags on them. After all, we built a quality product and price is an indicator of quality. However, if we are lying to ourselves about how good we are and over-price our product, sales will only pound their head so many times. Eventually they will figure out the true worth of our product and sell at that price. This means they discount to get us to a reasonable price.
The same effect happens when we offer one product with one price to two different market segments, each with differing willingness to pay. We set a higher price targeting the less price sensitive segment, but then have to discount to win the more price sensitive customers.
Measure what proportion of your deals are discounted and what the average discount is. This could serve as an indicator that you have set your prices too high.
2. We haven’t communicated value
Customers make choices between our products and our competitors’ products. If we expect to earn premium pricing, we MUST communicate why our product is better. How does that manifest as value to the customer? Turn feature differentiation into benefits. Communicate those benefits in terms of financial and emotional well being. If we haven’t delivered the tools to sales to help them communicate our value, then how can we expect them to do this well?
3. Lack of confidence
We may have solved both of the above issues, created a great product and priced it high, but intelligently so. Some salespeople still may not believe they can win at full price. They aren’t confident in either our price or our value. To combat this we need to share wins that other salespeople have. One effective tool is to regularly rank salespeople by their average discount and publish the rankings. Those at the bottom of the list may realize that other salespeople can sell without large discounts. They may become more confident. Share best practices.
4. Negotiation skills
A fourth reason may be we haven’t trained our salespeople in negotiation. Purchasing agents are well trained negotiators and are constantly battling for a better price. Have we given our salespeople the knowledge and skills to negotiate? Negotiation is all about gives and gets, understanding what is most valuable to each side. Can we find more items (in addition to price) to give when asked for a discount. Do we ask for items, like commitments or bigger scope, when we have to give something? The more negotiation skills our salespeople have, the less they will need to discount.
Of course sometimes sales really needs to discount in order to close the deal. If we want the business we need to discount. However, this then becomes an easy excuse for why we discount every deal. If you want to reduce discounting by your salesforce, address these four issues: price fairly, communicate value, build confidence and offer negotiation training. Discounting will decrease, profits will go up.
Mark Stiving, Ph.D.
Photo by jlz