The Dangers Of Discounting
Written by Sean McPheat |
You’ll know how difficult it can be out there to maintain your effective pricing strategy. How often have you been drawn into a price battle with your customer, with the biggest threat going through your mind that you’ll lose the sale if you don’t discount?
Before you do offer a discounted price, bear in mind the following dangers associated with lowering your original figure:
- When you offer discount, you set a precedent. The new price you offer is the reference point from which your customer will start negotiating. When you discount, it’s telling the customer that’s the starting point, and it’s going to be mighty difficult to raise prices again in the future.
- Your pricing point creates an image for your product and your company. By discounting, you effectively reposition your brand message. You are sending the message that your product isn’t as good as you say it is, and you turn it into a commodity, rather than something of value to the customer.
- You tell your competition you are willing to start a price war. When your competition see you discount, they will retaliate by cutting prices, and it’s a downward spiral.
- You are less profitable, and you earn less money. You become more dependent on a price-only strategy, eventually leading to a policy that focuses less on what you can do for the customer and more on cutting costs. This means you have less to invest in R&D and product enhancement, stifling your growth and leading to poorer quality.
- You send the message to your customers that, because your focus is on discounting, you might as well shop around for the cheapest price anywhere, because I have nothing to offer you but a lower price.
- Since the only way your company makes money is through the profits you bring in, you have to start looking inside your company to cut costs. You start asking questions like ‘how can we save a little on quality costs?’ and ‘do we need all these people to support our discounting salespeople?’. You have to cut costs on the inside because you aren’t making the profits on the outside.
- You tell the whole world that your products and services are not as valuable as you suggest they are, making the customer wonder where else you might not be strictly honest.
Do a study on how much your discounts actually cost your company. You may be surprised by how much your short-term thinking affects your long-term prosperity.
MTD Sales Training
Originally published: 2 July, 2010
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