Discounts are reductions that are made from the regular price of a product or service in order to obtain or increase sales. These discounts – also commonly referred to as sales or markdowns – are utilized in a wide range of industries by both retailers and manufacturers. The merits of discount pricing, however, have been a subject of considerable debate over the past several years, as analysts argue about their effects on short-term sales, longer-term profits, brand loyalty, and total supply chain costs for retailers and manufacturers.
Many businesses utilize sales representatives to deal with customers and close deals. But whereas sales personnel employed by retail outlets typically do not have the power to offer discounts, many representatives in the manufacturing and service sectors are provided with some leeway by their employers in this area. Both existing and prospective customers on whom they call are well aware of this state of affairs. Small business owners, then, need to pay special attention to this reality as they build their sales force. For as business experts in all industries will attest, many sales representatives are so eager to secure a sale – and thus a commission – that will offer a discount on a sale at the first hint of a price objection.
Sales people offer a discount too quickly because they get flustered and fear losing a deal, or because it’s easier than making the customer understand why this product is worth more. To heal off scenarios in which salespeople might unnecessarily fritter away profits on a sale with an unnecessary discount offer, business consultants and successful salespeople recommend that entrepreneurs consider the following:
1. Informed Salespeople Are Formidable Salespeople
Many requests for discounts are based on ignorance (feigned or not) of the difference between your company’s goods and/or services and those of the competition, which may be dangling a lower price. The challenge for the business owner, then, is to make sure that sales representatives can talk about non-price benefits authoritatively. A rep with a thorough knowledge of his product has a greater ability to offer creative solutions to his customers’ problems. Similarly, a rep must be able to articulate what makes his company different from the competition, and better suited to work with a customer. When a customer asks, ‘Why would I pay so much for your product when your competitor is selling it to me much less?’ the rep had better be prepared to answer: ‘I understand your concern. My competitor is a fine company, but let me tell you a few things about our organization that makes us unique.’ By going immediately to the company’s strengths, the rep automatically colors the competition to look weak.
2. Knowledge Of Client Issues
Knowledge includes not only representative awareness of his or her employer’s circumstances (inventory, profit margin, etc.), but also an understanding of the challenges facing current and potential customers. By taking a proactive approach that seeks out answers to customer hopes, strategies, and concerns, many representatives can head off attempts to secure a discount by highlighting customer service advantages that they can secure through your company. In addition, small business owners who are knowledgeable about key customers are better able to offer discounts that ultimately benefit their companies. For example, offering a small discount can be a good way to curry favor with a client that is on the verge of significant growth.
3. Provide Guidelines And Training To Sales Staff
Sales personnel should be provided with firm guidelines regarding their authority to negotiate discount prices to customers. Moreover, many business experts counsel entrepreneurs – who often serve as their own sales representatives, especially during a business’s formative years – and their sales staff to receive training in negotiation tactics so that they can better differentiate between customers who truly are unhappy with the price and those who are merely angling for a discount.
4. Recognize Industry Dynamics
Some industries allow participants to adhere to set price guidelines fairly closely, while others – whether because of intense competition, economic problems experienced by target markets, or some other factor – may have to be considerably more flexible in providing discount sales to clients.
5. Talk To The Right Personnel
Negotiations over price can vary considerably, depending on the personnel that are involved on the customer’s side of the table. In an interview, a consultant admitted that, “There are a lot of people who impact a large purchasing decision, and some are charged with getting the best price.” She also added that, “Some are charged with getting with what is good for the organization, and some have to work directly with the results of that decision every day – who you are talking to will determine how much emphasis there is on price. A lot of people say that if you can show value the customer won’t care about the price. But if you are talking to a buy whose job is to get the best price, he or she won’t care about value. If you want to show better value, you had better also talk to someone more senior, whose job is to find value for the company’s bottom line.”
6. Recognize sales representative priorities\
One of the chief problems with giving salespeople leeway to negotiate prices or offer discounts is that it creates a conflict of interest between many salespeople and their employers. After all, it is to the salespeople’s advantage to close every deal – no matter how unprofitable – if he or she will always earn a commission by doing so. Small business owners who closely monitor the performance of sales personnel can curb such abuses to some degree, as can those who firmly communicate sales margin expectations to their sales force. However, a solution might be to tie the salesperson’s compensation to the profitability of the sale. By linking compensation to the profitability of the sale, representatives are thus rewarded for making good deals for the company, not just by the numbers of sales they make irrespective of incentives that are handed out to the client.
7. Know When To Look Elsewhere For Business
Some customers simply will not agree to terms without unreasonable discounts that cut too great a swath into your profit margin (or obliterate it altogether). In such instances, it is usually better to move on in search of other customers rather than continually butt heads with a single client. Certainly, individual business realities can color an entrepreneur’s ability to do this. If the entrepreneur’s business is predicting a big marketing push on marketplace legitimacy that it owes to its relationship with the client, for instance, then it may be forced to accede to the client’s discount demands. But if a customer is unable to get beyond the price issue, it may be time to look elsewhere for business. Salespeople waste a lot of time on prospects who are not qualified, don’t have the decision-making ability, or are stalling them.
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