price-cutThere is no doubt that discounting is a powerful and effective tool for drawing in the crowds and increasing sales. No-one can argue with the fact that when it is done well, strategically and methodically, it enhances a brand message, leads to a higher return on investment in the long term and enhances customer relationships. But the key point here is that it needs thought and method. When discounting is not given the due diligence it deserves for long-term sales, or used simply as a quick lever to close a sale, the fallout can be catastrophic.

A client comes to mind who came to me for advice soon after he had begun getting his company off the ground. Let’s call him Jack.  It had been tentative steps at first. As a writer, he created business articles for companies on the internet and as we all know the web eats this stuff for breakfast. By lunchtime it’s hungry for more.  So, it was a great little niche – there was a big opening for on-going work and a chance to put a lid on constant marketing by supplying on-going articles with clients.

Highlight value over and above the discount

But he was just getting one-off sales. An article here and an article there and he was barely making ends meet. What he decided to do was to invest in a new online brochure which would be the centre of a Facebook and email campaign.

The point of the brochure would be to encourage companies not just to buy one article, but enter a contract to buy articles over a period of a year. If they signed up, he gave them a discount.  He decided on an enticing-looking discount then started his hunt for a not-too expensive online marketing company to get the message out there.

The marketing completed and paid for, he sat back and waited for future work to flow in. But nothing came back. Zilch.

So why did he fail to receive one opening for new on-going work? It was at this point Jack, troubled and a little out of pocket to say the least, asked me to take a look at his system and at what may have gone wrong and, funnily enough, the factor which had been presented as the perfect tool for tripling his sales had sent sales through the floor. In fact, he was lucky he did not get any sales at all! But we’ll come to that later.

The point was, instead of putting the main feature across as “consistent quality articles throughout the year (targeting consumers, his industry and ISP etc.) and the consequent positive effect on the search engines and brand awareness – ultimately, attracting more clients and getting more sales – the main reason for signing up for a contract would be they would get a discount!

Let’s look at this a little closer.

A loss of trust…

The first thing Jack had lost was trust. At the beginning of the brochure he outlined all the factors he would include within the article (such as research, optimisation, interaction with the website, graphics and distribution to social media) and then continued to clarify the article fee. At the same time, he made clear that part of the reason for having his product on-going was essential to maximise online marketing and SEO to increase sales. Why then should a discount be offered if the prospective buyer bought articles over a period of a year? Wasn’t this the whole point of the exercise?

Are you devaluing the product?

The two concepts did not sit together. After getting his readers on board by clarifying reasons for the original price he suddenly devalues it!  The message in the brochure therefore looked confused, his professionalism was tainted, and his audience took one step back. He did not spend enough time streamlining how it would all configure because he just saw it as a clever and quick way to close a sale.

Lack of confidence will not win the client

The discount also ultimately highlighted his lack of confidence in his product and that is the death knoll in any sales transaction. If this was such an excellent product, why was there a need to bribe his audience with a discount? If you do not have confidence in your product, your client will catch it on the wind and run a mile. If Jack was sure that his product and service and concept was worth the money, he had taken pains to elucidate at the original fee – why was he suddenly reducing the cost? As a salesperson, you should keep on track selling a product’s value rather than bribe the client with quick discounts.

Net profits had not been calculated including the discount

Why in a sense was Jack lucky that he did not get any sales?

Because the most important issue here for Jack was the margin. He failed to take into account those extra marketing costs before considering what effect the 15% discount he was handing out like sweets, would have on his profits.

Remember, a 1% discount on a £100,000 product/service = £1000.  If the margin is only 10,000 then that is a 10% discount on the profit. A discount can have highly positive effects as long as margins are seriously calculated.

And this point is particularly relevant to the sales guy who uses a discount, on the fly, in order to close a sale. You not only devalue overall profits, you could be devaluing brand, the business relationship, and trust.

But what if a client asks you for a discount?

The client is asking for a discount so there is a definite interest in your product – they are almost sold. It is at this point in the sale that there is a real temptation to offer the discount and close. Don’t forget you are trying to build an on-going business relationship which will hopefully lead to further sales. Allowing for a discount may set a precedent which you cannot get out of in the future. More than that – any referrals coming your way from this sale may tie you into the discount for everyone!

Don’t crumble – don’t give in. If asked for a discount now is the time to clarify exactly why they are asking. Some people ask to test you out. This is your chance to offer all the reasons why the features, advantages and benefits of the service/product will meet their unique problems. Use case studies and testimonials and especially quantifiable results (i.e. % increase on ROI or monetary value) to make your point.

Know your product, be confident and passionate about your product and your client will be too. A discount can have fantastic short term results but can cause chaos if not thought through properly.

 

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