- Is your price too high?
- Is your price too low?
- Do you discount?
- Why do you discount?
While working with the management team of a $100+ million company that included the CFO, the VP's of Operations, Sales & Marketing and CEO, we began discussing strategic positioning, corporate branding, and price model development.
As the management team gave an executive summary of their department areas regarding where they are currently at year-to-date sales performance, comments were made that their current pricing is too high. Apparently, this was impeding operations and sales departments from hitting their forecasted goals.
During the last 16 years, we have worked with hundreds of companies ranging from new businesses to Fortune 50 companies and it seems everyone says the same thing... their pricing is too high.
Does anyone sell a low-priced product or service?
Does anyone not discount?
The fact is everyone discounts based on their business operating model. There are two important questions that should be answered: 1) Are you discounting for the right reason?, and, 2) How does it help your sales or branding?
Pricing is a strategic tool to be used to drive specific goals based on marketing, strategy or financial goals.
Top 9 Reasons Why Most Companies Discount
- To close a new deal
- To create a long-term relationship with a client
- To improve cash-flow
- To generate a new reference account for your offering
- To steal market share from competitors
- To launch a new product or service
- To be equal to or less than a competitor
- To sell an add-on offering that is more profitable (service, etc)
- To reduce inventory costs (people or products)
Discounting to Profitability
Discounting is a business tool to drive corporate goals. Pricing is a positioning adjustment on those goals and can be manipulated at different times, in different ways.
Regardless of the product or service you sell, you have inventory that must be turned into profits. When you stringently stick to a "no discounting" rule based on an arbitrary market model of price, the cost of lost revenue increases. When your inventory sits underutilized on the bench (staff), or in the backroom (product), or unused (service), revenue is lost.
When adjusting your price model, use the following guidelines to manage your discounts.
5 Ways to Discount Your Price to Prospects
- Discount your product or service offering by setting different price points for different vertical industry markets (i.e., the hospitality market pricing; the insurance market pricing; the healthcare market pricing, etc.)
- Develop new product or service offerings with lower price points by creating new offering names
- Create business offering bundles that are discounted by cross-selling and up-selling your products and services as a package when the targeted prospect buys more
- Increase your pricing above retail to take out the discount
- Create a new service or product; price it; and then give it away "free" to the prospect as a discount. This way, the prospect gets the discount at retail, but you are able to expense it at your cost of goods.
Thinking about offering a discount to close a sale? Be skeptical using arbitrary discounting as a crutch for short-term profitability. Remember that pricing is a business tool to drive revenue. We all want to feel confident that we bought at a good price, and your customers are no different. To help buyers see and believe your value, give them multiple options to buy at multiple price points.
Value is an impressionable variable that can be managed. Discounting is a business model approach that can drive revenue (& profit-) growth.
To your success!