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Posted: May 11, 2011

The dangers of discounting

What's the real cost?

Liz Wendling

It might seem logical to discount during an economic downturn. You want to increase sales and attract new customers because your potential customers are nervous, tightening their belts and shopping around for the best price. The dreaded money objection sends many salespeople and business owners to drop their price to get the sale.

There is no doubt that discounting your price could provide you with a quick sale and occasionally improve overall sales. Discounting might help to boost sales and attract new customers in the short-term, but from a strategic perspective it can have a negative impact on your product or service. It is important to consider the potential consequences of slashing your prices. This can lead to encouraging customers to wait for discounts before making a purchase.

Every industry is becoming more competitive and your customers are taking a closer look at what your competitors have to offer. Is the new low-price competition stealing your customers away? The most challenging problem business owners and salespeople struggle with in today's economy is how to defeat the competition without slashing your prices.

Part of your ongoing battle with competitors is on pricing. They lower their prices, and you feel forced to keep up with them and lower yours. There are different strategies involved in pricing that do not always involve cutting prices, but they do involve being more competitive.

Discounting seems so innocent; but it can be tragic to your bottom line. What seems like a minor concession in order to close a sale often has serious consequences for a company. Lowering your prices weakens your business, stunts its growth and makes it more exposed to an attack by your competition.

There is nothing stopping business owners and salespeople who choose to compete on price. You can always lower your price and close a few sales. But at what cost? If you want to sell more products or services, more profitably, to more people, you must resist the temptation to discount and begin focusing on value.

Instead of discounting, learn to create value for your client so they do not feel like they have to ask for discounts. After all, your willingness to give a discount may send a message that you do not think the value is there. But if you must discount, get something of equal or greater value in return; perhaps a larger order, an accelerated payment schedule or some other concession.

While discounting may be appropriate for some companies, the concept should be carefully considered for its effects on your business. Using alternatives to discounting will be more beneficial for your business growth over the long term. Consider which strategies will be the most effective for your business and business niche. Ensure that your business is offering the best products available in its field or industry so that you can demand the appropriate pricing for the product's value.

Most customers who demand a lower price have not recognized the unique value that your solution offers. If today's customers are to pay more, they must get more. You defeat your competition by getting the best possible match between the strengths of your offering and your customers' needs.
To attract and gain new customers, you need something dynamic and memorable to set yourself apart and not fall into the price trap. If you think of yourself as offering a solution to a problem rather than offering the cheapest price, then you are well on your way to succeeding in sales and in your business. Remember, it's not what you sell, it's how you sell.
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Liz Wendling is the president of Insight Business Consultants, a nationally recognized business consultant, sales strategist and emotional intelligence coach. Liz is driven by her passion for business and generating results for her clients. Liz understands the challenges that business owners are facing building a business and selling their professional services in today's market.

Liz shows clients how to tap into and use their innate strength, power and confidence to develop highly successful businesses. She teaches them to create effective, dynamic and fluid client conversations that turn interested prospects into invested clients who keep coming back.

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Readers Respond

Liz, you're on target as always. A CFO of a high-tech firm recently reminded his sales team that if the net profit on a sale is 20% and they discount a sale 10%; they have decreased net profit by 50% (from 20% to 10%). If they discount 20% they have decrease net to 0%. Discounting kills. By TC North on 2011 05 20
This is an old old story but worth repeating. Obviously "value" is the key and sales is the vehicle to get there. ALL business people are salesmen and this is a constant requirement for success By John Wray on 2011 05 19
Great article, We have founded and run our business for 20 years on selling the best quality products available. We are never the cheapest - but always a great value. Good Job. Byron Willems Craig Fire & Safety "Servicing our Customers for 20 YEARS By Byron Willems on 2011 05 19
I've found that customers who beat you up on price turn out to be the worst customers anyway. The urge to bargain seems closely related to the "complain and return items" gene. By David Ess(EveryoneHasABoss) on 2011 05 12
I think that your article applies in all economies By John Wray on 2011 05 11
Thanks for the reminder. I was heading out for the day to do more discounting. I will think of this article and resist. Always appreciate your expertise! Steve By steve on 2011 05 11

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