Our Thursday November 18 webinar “Avoid Discounting Using Value-Based Pricing” was well attended and provoked some strong responses. Discounting is a sore point across sectors, and clearly “Just Say No” is not working and in any case is not the right response. To view this webinar On-Demand visit our Resource Center.
Here are a few of the highlights:
While just one participant indicated his company does not discount at all, most companies are providing discounts on most of their deals. In fact, almost half said their companies are upwards of 75% of all deals! Of those discounting, roughly half are discounting in the 10-25% range per deal, and almost a quarter offer discounts typically above 40% per deal. Participants came from many different industries (specialty chemicals, medical devices, software, industrial equipment, information), which indicates that discounting occurs in B2B companies across the board, but also reminds us that discounting levels vary greatly from one industry to another.
And to be fair, the point is not to completely eliminate discounting. There are two cases in which discounting would be a great strategy. First, discounts can be used as an investment in a particular segment to gain market penetration. Second, if your offering provides less value to a particular customer or segment, the price should be adjusted accordingly. In both cases it makes sense to keep the list price at a higher point for most customers.
Rather, the problem is that most discounting seems to be a knee-jerk reaction, either to end of quarter sales quota pressure, or the entry of a new, lower-priced, competitor. In this example, the right response is not to cut price, but to (i) make sure you know your differentiated value and then (ii) communicate that value to your customers. For those customers who really don’t value your differentiation, provide them with a lower-priced option that strips away the value they claim they don’t need. For a more in-depth review of the pressures leading to increased discounting.
Getting control of discounting requires collaboration throughout the organization. Sales regulations (ignored or riddled with exceptions) are not enough, and having the right sales incentive plan alone will not get it done. The key is how much value you provide customers, and the solution is not more market research surveys. Instead, empower sales to have better value conversations with customers during the procurement process to get the truest reflection of their needs. Information about the differentiated value provided in comparison to the competition must come directly from customers and can easily flow from sales to product development, pricing and marketing.
Pricing and marketing should use this information to hone value messages (which are specific to both the customer and the next best competitive alternative) that sales can actually use. Generalities about benefits don’t cut it when the customer is pressing for a discount. Everyone needs to have a seat at the table. Leverage point lets you do just that.