What's the Real Reason for that Discount?
Sales professionals often use discounts in order to close business. In some cases, the "discount price" is actually the "real price" and the discount is built into the business model as a tactical trigger to closing the deal.
However, in other cases, discounting is bad for business, because it reduces profit margins and (when the discounts become public knowledge) makes it impossible to charge full price for the offering.
In the poll below are four "reasons" that sales professionals offer discounts. Three of them are just excuses; only one is a true reason. Can you pick out the reason?
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A reason is something that explains why something happened, in terms of cause and effect. An excuse is an attempt to justify an action after the fact, while ignoring the actual cause.
In that list, the only REASON for offering a discount is:
- #1: "I was unable to differentiate our product so I had to offer a discount." This is a reason, because it's cause and effect. Unless you're in a business where the discount price is assumed, offering a discount is simply a way of saying that you're not doing a good job of selling. You're failing to establish yourself, your firm and your offering as essential elements of the customer's success.
- #2: "It was a highly competitive deal so I needed to lower the price." This is an after-the-fact justification. By definition, you've let the opportunity get into a situation where the only differentiator is price. You should have found something about your offering (or your firm or even your own person) that is both unique and important to the customer. Then price becomes a non-issue. Here's a post that can help you manage this: "How to Defend Against a Lower Price."
- #3: "The economy is tough so we need to be realistic about our pricing." This is another justification. Sure the economy plays a role in buying decisions, but if you know how to position your offering, a bad economy can be a spur to buy, rather than a reason not to buy. There are many ways to use a weak economy to increase sales. Check out this post: "How to Sell MORE During the Meltdown".
- #4: "I would rather have the deal close at a lower margin than have no deal at all." This is also an after-the-fact justification. It usually pops when a prospect demands a last-minute discount. If you'd held firm, the customer would have backed down, because this was a test to see whether you have a backbone. You failed the test. Now you're just trying to explain it away. This post will reinsert your lost backbone: "How to Handle Last Minute Demands."
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