Are you sick of hearing about the need to protect your premium high value offerings and stop discounting? Well, you may be sick of hearing it, but it's true.
Sellers, please do not think I am (only) pointing the finger at you. Many of you face challenging situations with:
- A single marquee product or service without supportive offerings
- A rigid offering package that doesn't allow you to trade value for price
- Competition that is constantly undercutting your price in the market
However, all of the excuses in the world do not change the effect discounting has on your entire commercial ecosystem.
Don't want to believe me? Here's what happened to one of our recent clients when they didn't control their discounting behavior...
|1 - Their buyers: The games began the very first time that buyers learned a discount was available on our client's premium product. Year after year, buyers relentlessly asked for additional discounts, both on the current and future products and services. Net result - the buyers paid less over time and our client continually lost margin dollars.
|2 - Their customers: Those who believed in the value of the premium product continued to pay a higher price. Not only did they pay more, but they were also rewarded for their loyalty with price increases. How else was our client going to make up for the lost margin in the previously mentioned category? Ultimately, pricing became more transparent in the market, turning loyal customers into dissatisfied (if not former) customers.
3 - Their competition: The sharks quickly smelled the blood in the water. In the short term, our client was successful in discounting their premium product to win share. However, they did so against lower value offerings from the competition. As a result, the competition quickly responded with additional price decreases. To make matters worse, the competition made their pricing changes known to the entire market … Now they had a price war to deal with … Awesome!
|4 - Their company: The internal processes and negotiations to approve the discount requests with pricing, finance, sales leaders etc. put an unnecessary strain on the commercial organization. All strategic initiatives had to be put on hold to deal with the increased workload. Further, the marketing and product team was upset because the premium product they built was being given away to customers. Then, at year end, the CEO was livid when they saw the impact on their bottom line.
|The solution: Unite the commercial organization (product, sales, pricing, marketing, etc.) to create a product offering and pricing structure that meets the needs of both the company and its customers. It's usually all there... but the team might need a bit of a push. Then brainstorm and, better yet, role-play your negotiations to ensure you are communicating the value you provide to you customers. Finally, don't be afraid to fire your unprofitable customers. They are a waste of time and ultimately ruin your profitability.
Do you want to learn more about how to protect your premium offerings with price-value tradeoffs? Take a look at our article on Give-Gets, Superpowers for your Sellers: