Why Discounting is Destroying Your Sales (And What to do Instead)
Have you noticed how our shopping culture has changed in the last decade?
Maybe it’s because of the economic downturn in 2008 or maybe it’s just a natural shift that’s been happening, but everyone, and I mean everyone, seems to be slashing their prices. There are even multi-million dollar businesses that have built their organisations around the concept of discounting.
Take Groupon for example. While the person who signs up to receive those daily “deals” might not be thinking of it as a discount, but rather a special package or promotion, in reality, they’re purchasing a product / service at a lower price, making it a discount.
Discounts are all around us, and as consumers, we’ve started to be conditioned to not purchase unless we’re getting a great deal.
Why Offer a Discount?
Aside from the fact that it’s now just commonplace to offer a discount, there are strategic reasons (at least the companies think they’re strategic) why organisations choose to cut their prices. At the very highest level, discounting makes sense from a marketing and sales perspective, especially when you’re in a slump.
You’re attracting a load of new customers to your company, who you might not have ever found before. And you’re encouraging them to buy by offering them a deal. And while that may sound like the most brilliant strategy in the world, I’m here to show you that discounting can actually hurt your business in the long run.
It’s also important to understand that this isn’t just a B2C epidemic, it’s everywhere. Discounting in the B2B space happens much the same way as it does for B2C companies.
1) Lack of Confidence
When you’re offering a discount on your product, what is that saying to your prospect? It’s saying that you don’t believe enough in what you’re selling that you think you can sell it for the standard price. Confidence is a game changer, so when you’ve lost that, you’ve most likely losing the sale.
2) Bad Precedent
When you offer a discount, whether it’s the first engagement or the fifth engagement, there’s no going back. As soon as you lower your price, your customer will expect to see the same thing next time.
That’s just bad business.
3) Lower Perceived Value
Most people value something based on its price. But as a salesperson it is your job to sell the value of your product or service in other ways. You haven’t done your job (effectively at least), if you haven’t demonstrated to your prospect that what you’re selling can truly add value to their life. If you go in with a discount in hand, you’re trashing that value and throwing it out the window. And while they still might buy from you, they’re not going to place as much value on it as they most likely would have before.
This point is especially true when you’re in the middle of the sale, and things start to get sticky. You’ve already laid out the proposal, telling your prospect that this is your standard pricing package and the very best that you can do for them. As the conversation continues to spiral downwards, you realize you’re going to lose out on the sale. What do you do? Offer a discount!
While your prospect might be thrilled at the time to get a lower price, in the back of their mind they’re also saying, “Wait, but they already told me this is the very best they could do and now they’re offering me a discount? What else haven’t they been honest about?” You’re stirring up questions that should never be there in the first place.
5) The “Price” Conversation
The last thing you want in a sales conversation is to have the conversation focused on price. And that’s just what happens when you offer a discount. When the conversation is focused on price, it doesn’t give you room to talk about the other important things, like your prospects’ needs / business challenges and how your company is offering the ideal solution that will make their lives more painless. And in the long run, it’s hard to sell something based on its price than on its value.
6) The Profit Cuts
It’s hard to run a successful business. And with the ever-increasing competition, it’s even more important that you hold onto as much profit as you can. As a business, if you discount by 50%, what does that do to your sales? It means that in order to hit your same revenue goal, you’re going to have to sell twice as much. Do you have the time or the manpower to do that?
The same is true for an individual salesperson. When you’re offering your prospect a discount, you’re going to have to sell a whole lot more in order to hit your monthly target. While this might not necessarily affect your current sale, think about what it means for your workload, which in turns affects your ability to sell effectively. You’re going to be stressed, rushed, and very driven to just move onto the next sale because you’re always playing catch up.
Next week I’ll tell you what you should do instead!