In the B2B space, it is simple really. When negotiating a sale with your customer, there are only 3 reasons to consider discounting your product. It is important to train your sales team to be prepared to defend their positions when giving discounts. The alternatives can be very painful.
(1) Competitive Pressure
Competitive pressure can take several forms, sometimes based on hard reality or perception. Hard reality can take the form of a more-capable product from a competitor in your space, offered at a similar price point. Customers generally want the best value for their money. Your product may offer everything they need, but the ability to get ‘more’ for the same amount elsewhere lure them away. The only way to (re)capture their interest is by adjusting the price appropriately.
Another common form comes from a competitor actively working against you in your account. Perhaps you have been asked to compete in a benchmark (comparison test). Sometimes, even if you have the advantage, those in charge of the funding (i.e. Purchasing) may opt for the product that’s just 1% cheaper. It’s up to you: Do you reduce the price of your product 2% to get the business?
(2) Secure a Commitment
This can often come down to an end of month/quarter/year period, where you are working to meet a revenue target. We have all seen these. Best time to buy a car? On the last day of the quarter, or the last week of the year. Odds are good that the salesperson, sales manager, dealer manager, are all working to get ‘one more sale’ to meet a bonus target, or maximize whatever threshold they have already passed. It is the same in the B2B space. Companies will run specials, or be extra flexible in pricing, to ensure they meet a goal.
The problem with dropping prices to me an arbitrary deadline, is that customers learn to expect them. Then, when they want to buy something, they intentionally wait until the last possible minute in order to get the greatest discount. I’ve seen multi-million dollar deals trimmed 10/20/30% just to meet a calendar-drive date.
Whenever possible, I specifically train my sales teams to avoid ‘predictable’ discounting. Once customers learn to anticipate seasonal discounts, it can take years to ‘un’train them. And, no, you cannot artificially raise prices…certainly not for long. Customers are smart. They know what a product is generally worth. There’s also those pesky competitors lurking out there.
(3) Barter
In its simplest form, an exchange of value.
Many countries have strict guidelines (the FTC, in the US) regarding compensated (i.e. get a discount in exchange for) endorsements, recommendations, testimonials, or the like. To avoid concerns over ethics, legality, and integrity, I prefer to avoid this type of exchange even when permissible. However, other very beneficial situations exist.
Here’s one very good example. In the design software space, each new release of software tends to have a theme. It might be highlighting how easy it is to create rounded edges. Or how quickly you can create an assembly (e.g. digitally build a machine).
One of the biggest challenges can be finding a real-world example, a customer model, to use.
One solution may be to negotiate a customer discount in exchange for a data model with rights to use. The customer is happy. And, you’ve saved time creating a model while having secured a ‘real’ model.
At the End of the Day…
Never discount your products without getting something in exchange. Perhaps it’s the added incentive to buy your product over a competitor’s. Perhaps you want to make sure the customer PO is received on time. Or, perhaps there is another (acceptable) exchange of value to be had. Whatever it is, make sure there is a reason.
Image credits:
IronCAD COMPOSE – Design World
Discounts – FreeStockPhotos