Value or Price? The Pros and Cons of Discounting

Value or Price? The Pros and Cons of Discounting


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“Should I give a prospect discounted pricing?”

Business owners frequently ask me that question. My answer is two questions: “What happened the last time you gave a discount to a customer? What impact did the discount have for you and your prospect?” At some point in the sales and business lifecycle, business owners and salespeople must come to terms with a seeming contradiction: sales, especially discounted sales, don’t always lead to increased profits or customer satisfaction.

When Discounting Works

Discounting can be effective and potentially profitable in specific business conditions. For example, discounting can help to reduce ageing inventories of older products or models that require limited customer support. For a new business in the initial stages of building a book of customers, discounting can help to fuel that initial growth. In a proposal or bid situation where the prospect represents a large, high-quantity, long-term or repeat customer, well thought-out discounts, particularly for additional products or services, can be part of a winning strategy.  Conversely, spontaneous discounting can affect the integrity of your company’s brand, wreak havoc with operations and erode profit margins.

Here are three ways to think through the pros and cons of discounting before a prospect asks.

Know the Lifetime Value of Your Prospect// Determine the length of time you expect customers to buy from your company, and divide the dollar amount you expect them to spend with you by that time period. That number is the average lifetime value, or LTV, of your customer base. Identify whether your prospect’s estimated LTV meets or exceeds this metric before considering any form of discount.

Offer “Give to Get” Incentives// If a prospect that meets or exceeds your LTV criteria asks about discounts, consider “give to get” incentives. For a business-to-business prospect, options could include on-time or early payment incentives, value-added customer service, or multiple payment methods or terms.

Reinforce Your Company’s Value for Your Prospect// Reframe the conversation to emphasize your company’s value proposition.

  • Dollarized Value: Quantify how your product or service can increase income, reduce the cost of ownership, or provide value over a specified timeframe for your prospect, compared to competitive products or services.
  • Company Values: Describe your company’s values and the positive outcomes that your product or service can have for your prospect. An example for customer service might be: “We believe that our customers deserve a reliable, local expert to answer their support questions. We don’t route you through an anonymous help desk or call center that is thousands of miles away. We assign a member of our local client service team to each of our customers, and you know exactly whom to call when you have questions.”

Prospects often focus on price when they don’t fully understand the value that your product or service provides. As business leader and value investor Warren Buffett succinctly put it: “Price is what you pay. Value is what you get.”

 

Elizabeth Usovicz is principal of WhiteSpace Consulting®, specializing in top-line revenue and business strategies for high-growth companies, new ventures and business units within established companies; keynote speaking and strategy session facilitation. She can be reached at elizabeth@whitespacerevenue.com or (913) 638-8693.

Elizabeth Usovicz

Written by

Elizabeth Usovicz is principal of WhiteSpace Consulting®, specializing in top-line revenue and business strategies for high-growth companies, new ventures and business units within established companies; keynote speaking and strategy session facilitation. She can be reached at elizabeth@whitespacerevenue.com or (913) 638-8693.

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