Every good salesperson knows the power of a discount. It entices the consumer: “We’re Slashing Prices!” “Everything Must Go!” It’s effective in many ways, helping increase awareness and get people in the door. But overall discounting devalues your product, service or entire brand. There are certain guidelines you need to understand before offering a discount for your business.
Why Offer a Discount?
There are many tactical reasons to offer a discount and why certain companies choose to slash prices. Discounting a product or service is sensible when your sales are declining – you attract a horde of new clientele to your brand who might not have ever considered buying something from you before. While that sounds great at first, in the long term, discounting can actually negatively affect your returns.
That’s why sales managers should tread lightly when dealing with discounts. Yes, they may drive sales at first, but they can be a destructive force if enacted too casually or thoughtlessly. This guide is here to show you how discounting can actually hinder your ability to close the sale.
1) Confidence in the Product/Service
Many times, prematurely offering a discount tells the consumer that you do not fully believe in the value cast upon the item for sale. Potential customers can smell desperation a mile away, don’t scare them by slashing prices carelessly.
2) Leverage for your Salespeople
With discounting, you no longer have something to leverage as a final selling point. When selling something that’s already discounted, your salespeople won’t have the opportunity to offer a discount as a last resort. If the prospect gets cold feet, throwing out a discount is like a cozy blanket that warms them back up.
3) Sales Team Performance
The money you lose when discounting is just that much more in which you have to make up at the end of the month. When you offer a discount, you’re putting more pressure on your sales team to perform and hit their quotas. So, next time you slash a price by 25%, know that you have to make sure that your sales pipeline is big enough to cover the that 25% discount to achieve your revenue objective.
4) What’s the Right Price?
Price is a huge factor in discounting products and services appropriately. When offering a discount, the consumer’s mentality determines the price vs. the value of a product or service. Customers want to believe in what they’re buying; they should think of their purchase as an investment in your brand because of the return benefits, not the final discounted price.
5) Establishing Precedent
Once a discount is set, going back to the original price is not an option. Not only will you affect the current sale, but future sales as well, since the customer is now expecting that discount. Setting precedent also marginalizes existing customers, making it harder to raise the price.
6) Deviating from the Original Item
Discounts deviate the customer’s attention away from the product they originally intended on buying and towards the sale item. For example, a customer goes on a website to buy a specific SaaS platform, and the discounted package is presented next to the full-priced package. All of the sudden the cheaper option looks much more attractive, and they go with it. If you’re going to offer discounts, make sure the placement is in a place that doesn’t detract from the main offering.
7) Profit Losses
It may be obvious, but when offering a discount, your profit decreases overall by lowering your revenue and decreasing your margins. Cash flow is directly related to the health of your business. How many more sales must you make to replace losses incurred from the discount? Ensure a positive cash flow so you can invest in your company and grow.
8) Conditioning Customers
With a recurring or regular discount, you risk conditioning your customers to expect the deal whenever it applies. So, if you give end of the month or end of quarter discounts, your customers will learn to wait to buy an item until the deal happens.
Discounting devalues your product, plain and simple. While a discount can be used as a set up to get people in the door, it’s also going to leave a lasting impression that the product or service in question was priced too high to begin with. This definitely won’t help you in your long-term business relationships and future sales efforts.
There are a lot of opinions in many industries as to whether discounting really works anyway. There are many psychological aspects on the buyer’s path to purchase, not just whether or not they get a discount. Obviously a prospect wants to get the best value, but more often than not, the decision-making process involves evaluating more than just the price. For example, in which ways will this sales solution help your profits improve?
The easiest and most effective way to avoid discounting pitfalls is to have an optimized sales funnel and a strong pipeline. With more qualified lead opportunities, you can breath easier knowing that the discount isn’t at the top of a prospect’s mind. Overall, use the discount sparingly and in moments of need, and always consider the disadvantages before you mark something down.