How to avoid a discounting spiral

In a competitive landscape it feels like discounting may help you close the sale – but it will also have a negative impact on your bottom line.

Unfortunately, once you start discounting it’s all too easy to get addicted to closing sales and getting people through the door.

In time, customers will also come to expect your product or service to be priced at the lower-end of the market – meaning it’s very hard to get out of the discounting trap.

What can you do to avoid finding your products or services being placed in the bargain bin?

Don’t do these three things

1. Ask this question

“Is there anything else you need from me to help with your decision? How about the price?”

You’ve not just opened the door, you’ve actually invited your customer in to beat you up on price.

Even if price wasn’t a consideration to them before, it will be now.

You’ve turned your buyer into a ‘deal-hunter’ and their behaviour will change. They’ll most likely ask you to sharpen your pencil to help get the deal done.

You may feel like this helped bring the deal in quicker, but your impatience or desperation means this customer is likely to always expect discounts.

2. Low-ball to get a new client

You may win a new client with this but probably not a great client to have long-term. Do you really think you’ll be able to get the price up after the first discount?

A client brought in on low rates is always going to expect low-rates.

If you do increase your rates in the future, it’s likely they’ll seek out other suppliers as you’ve helped condition them to hunt out deals.

3. Price to hurt your competitors

Sometimes companies will ask you to submit a proposal or a bid for something that you know deep down you have little chance of winning.

For example, you may find yourself in a situation where you’re pretty sure that the client’s current supplier will win and you’re really only in the race to keep the current supplier honest.

So why not chuck in a very low price to try and hurt the margins of your competition? Because you’re speeding up the race to the bottom.

The lower the price the market starts paying for your product or service, the lower you’ll have to start charging.

The Australian Competition and Commerce Commission also tends to take a fairly dim view on anti-competitive behaviour, while over in NZ the Commerce Commission also feels the same way.

Do these three things

1. Ask a better question

Why not try to find out what’s really behind the delay?

It seems simple, but the reason they haven’t signed up yet may have nothing to do with the price.

Try and remember that your prospective customer’s buying process should determine the speed the sale, not your own sales process.

Start to think about this from the customer’s point of view, ask if their priorities have changed. If they have, see if you can help them or point them in the direction of someone else who can.

2. Focus on building relationships, not making a sale

It may be quicker to discount to get a new client, but this approach will be unlikely to lead to a profitable relationship.

Instead, develop a clear client relationship plan that gives you clear steps to shift this relationship to a partner relationship.

When you’re your client’s trusted business advisor, they simply won’t ask you for discounts.

3. Give something free, just once

Yes, you may have some short-term pain as you’ve had to give a freebie or in effect a discount within this trading year. However, your long-term price is still the same, future profits are secured.

Sometimes I’ve seen software providers do the set-up for free, knowing that their year on year licence fee will stay the same.

Therefore, to make sure you don’t end up in discount land, focus on building trusted partner relationships.

Want to help planning your next sales meeting to avoid ending up in discount land? You can download a copy of the Business of Trust’s free Sales Meeting Planner Template here.