Strategic Discounting

AmericanaThe other night our friend James von Rittmann regaled us with fascinating stories of how before going to college he managed to buy the Americana, a 140 foot boat commissioned by Al Capone in 1927 and launched in 1930. James chartered the boat out in the New England area for large parties on a daily basis (at high prices of course) and as a result met many fascinating people. He told stories of how twice it was captured by pirates, the second time the pirates ran it onto a reef, which ripped a gaping hole in the hull. Unfortunately insurance wouldn’t cover the extensive damage so he had to move on in life.

Many years later, James found the Americana on the West Coast. After meeting the new owner, James excitedly chartered the boat for an event. He was given an exceptionally great price for the charter “because of who he was.” During the event, the new owner referred to the Americana as James von Rittmann’s boat.

OK, this is a pricing blog. Why the long intro? The nature of James’ current company involves, at least in part, putting on amazing events for premiere school alumni associations. These are often high-end affairs.  He has since chartered the Americana many times for some of these events.  The new owner gave a “strategic” discount to James, to win him over and gain repeat business. Smart decision.

Think of a strategic discount as one that helps us attain a longer term goal. This can be discounting to win a huge client (like James was for the new owner). It can be to build word of mouth or a great reputation. Maybe one customer has a lot of sway over other business. These are all strategic situations and we may want to offer a discount to be sure to win.

However, how often do our salespeople ask us for “strategic” discounts? It seems like every deal is “strategic”.  In a way, every deal is strategic. Every deal does help our revenue and our reputation.  But this doesn’t mean we want to discount every deal.

What should you do when you’re asked to discount for that “strategic” customer? First, vet the opportunity. Is it really strategic? Do you have a working definition of strategic for these situations? You offer a strategic discount because you expect to gain something in return. Can your salespeople clearly articulate what you will gain?

Second, start and maintain a Strategic Deal Log. This log should include the date of the deal, the customer name, the salesperson name, and details of the deal. Most importantly, it must include what you expected in return for the discount and the expected date of the quid-pro-quo.

Now, when a salesperson comes to you with a new strategic opportunity, you can search the log for other deals that salesperson has brought to you. Did any previous discounts we offer actually result in a strategic return? You can also check the customer name to see if they are on the log.  Have they delivered on their previous promises?

Over time, you can use this log to refine your definition of a strategic deal.  What are the characteristics of opportunities that live up to their strategic billing?

In the end, you want your salespeople to highlight the strategic opportunities so you can act strategically, just like the new owner of the Americana. However, you don’t want sales to use the phrase “strategic” every time they need a discount to close a deal. Try creating a Strategic Deal Log.  It can’t promise smooth seas, but it is instrumentation that will help you reach your destination.  (A little sailing metaphor.)