This month our blog theme is Fearlessly Pricing for Value – the F in the P.R.O.F.I+T Roadmap. Let’s tackle a couple of the quickest ways to stop leaving money on the table.
Is Discounting a Good Pricing Strategy?
First, ask yourself, why do you discount? Sometimes it’s because a customer asks you outright to match a competitor’s price. Sometimes it because your guessing at what it will take to win a sealed bid. Often it’s because your sales reps think they can close the deal faster by throwing a little something in the customer’s direction.
And it’s costing you a bundle. For most companies, every 1% discount has somewhere between a 16%-38% impact on their bottom line. Every 1% that leaks out of your business is what’s making the difference between having a great year on the top line and nothing to show for it on the bottom line. Yet when I’m speaking to CEOs across the country, they routinely confess that their “normal” discounts are 5%… 10%… 15%… 20%….25%… or more. Ouch!
Don’t believe me on the impact? Access the pricing calculator on my website and find out.
In the meantime, here are 2 of the 21 low-risk, low-cost ways to price for value that are included in Semester 3 of my innovative online learning program, ProfitU.
Pricing Strategy #1 – No Round Numbers!!!
I’ll give you the easiest strategy to find 1% everywhere and start putting it on your bottom line.
Take your 5%… 10%… etc. and stop using those round numbers. They’re a hangover from the days when we didn’t all have calculators on our cell phones, and it’s time to let them go. If you must discount, then offer 4%… 9%… etc… and you’ll see some impact. But don’t stop there.
Pricing Strategy #2 – Change the Playing Field
I graduated from university during a recession and had to take a job I hated – selling multi-part business forms for NCR. In that industry, the common approach was to ask if you could bid on their existing forms and to try to win it on price. The standard discount I was authorized to offer was 40% – ouch! Well, we had a much bigger competitor, and that was not exactly a creative or successful sales strategy. Even if I got the deal one year, the competitor would undercut me the following year, and we were basically in the trap of racing to the bottom while our customers played us off against each other. Sound familiar?
I figured out pretty quickly that I was having to sell almost double my quota every time I cut the price by almost half, so I decided to take a different approach. I started asking my customers for samples of completed forms, and I asked them to map out where each of the copies went. I almost always found a way to reduce the size and to eliminate unused copies. This differentiated me from the “lazy” competitor who was in the habit of simply repeating the order, and my customers appreciated the time I invested to understand their needs. Using that strategy, I was able to offer the customer a less costly alternative, typically at list price.
By taking the time to observe what the customer really needed to buy vs. making assumptions or asking them what they needed, I changed the playing field on my competition and turned a 40% discount into less than 5%. The customer won. My company won. And I won. It’s time for you to change the playing field in your business by getting a truly insightful look into your customers’ real needs and wants so that you can price for value and create a win for both of you.
What’s the most effective pricing strategy you ever used for reducing or eliminating discounts?