When Discounting Moves from Dangerous to Disastrous

Posted by Reed Holden on Sep 6, 2018 6:25:16 AM
Reed Holden

OK, I get it. In rapidly growing markets, it's worth it to discount your products and services, in order to establish and expand your footprint. The high-tech guys have known this for years and use that strategy quite effectively.

Here's the problem: there is a point at which that strategy no longer works, and that is when markets start to slow down or mature and customers get smarter about pitting competitors against each other. They start playing what we call Poker Playing games with their vendors to squeeze them for lower prices. Growth slows and profits disappear.

Now, companies have established discounting as a way of life and seemingly have good reasons to continue discounting, even though it no longer expands the footprint. Many of the high-tech giants are now facing this. It happened to Dell some years ago and it was painful to watch as they changed management teams, went private, and brought back Michael Dell.

So, in fact, for many of these companies, if they continue to discount too much, it will actually shrink the hard-won footprint. Salespeople discount to meet quotas, and executives discount to fill factories or meet Wall Street expectations. It is ingrained in the culture. Without real change, these companies will wither on the vine, get bought, or die.

Successful companies see the need to change. They see that it requires real transformation throughout the sales culture and at the manufacturing plant level, as well. These transformations usually focus on:

  • Dramatic change to the firm's core business (Intel)
  • Recognition that services can expand footprint in a mature market (IBM)
  • Breakthrough innovation to continue growth (Apple)

In these cases, strong leaders drive others to follow the new direction and stay on course for the years it takes to implement.

As we watch the lunacy of discounting that plagues so many industries (think wireless industry) it's just too bad that so many executives can’t change their leadership style to align with building their footprint (yep this is the fun part) to leveraging that footprint to protecting it.

Discounting causes profits to all but disappear in front of our eyes.  We'd love to send you a whitepaper on some of the hidden causes of these disappearing profits, and tactics to combat each.  Click below to download:

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Topics: Negotiating with Backbone