When To Discount? Never.

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During her sales presentation, the representative of the Customer Relationship Management (CRM) software solution we were considering launched into a long discussion about how her system enabled sales people to offer discounts to customers in real-time. Discounts by product, discounts by customer type, discounts by customer size, discounts by region, discounts by season, discounts, discounts, discounts…

She also shared how an administrator could set limits to the magnitude of discounts offered, based on employee position level. One limit for an account executive, a higher limit for a manager, even higher for a director, and so on. “Isn’t this great?” she asked.

“You can skip this part,” I responded respectfully. “We never offer discounts.” Here’s why.

A finisher that rushes to discount her price in an effort to win a customer order shows a lack of confidence in the value of her product or service. It’s as if she is saying to the customer, “Hey, I know what we are offering isn’t worth what we are asking for so let’s find a better price.” If she isn’t confident in the value of what she is selling why would the customer be? Instead of rushing to lower her price, she should find an opportunity to emphasize her company’s value. What’s more important to the customer, a somewhat lower price or shorter lead-time, a slight discount or more consistent quality, getting a deal or on-time delivery? It’s alright to be more expensive if we can back up the higher price with performance.

Routinely offering discounts makes us feel a little slippery. Take Customer A and Customer B. Do you have any situations where Customer A would be furious (and you embarrassed) if he knew what Customer B was paying for the same product or service? If your answer to that question is yes — and I suspect it is for many finishers — don’t you feel a little bit like you’re ripping off Customer A? That’s what can happen when we offer discounts to one customer and not another. This doesn’t mean that we must charge our seven-figure customer exactly the same unit price as our five-figure one. Pricing based on total volume and other strategic factors is logical. However, all things being equal, it’s best to have a consistent pricing strategy, and offering a discount to one customer and not to a substantially similar one can lead to problems.

A customer who asks for or demands a discount never asks just once. Hold firm on price once and they may never ask again, discount once and they’ll expect one every time. Giving in on a discount request, or worse, offering one before it’s even requested, sentences us to a customer relationship of never-ending discount requests. With every new part, product or project year, they’ll come back again just to see if they can get an even better deal than that we offered the last time, eventually driving the finisher’s margin to near zero and making the customer relationship untenable for the finisher.

Holding firm on refusing to discount takes discipline and skill. It also requires nuance. A finisher shouldn’t dig his heels in so deep that pricing inflexibility costs him an important customer relationship. The ability to hear the customer out, participate in the normal give-and-take of commerce and find creative ways to retain and win business in competitive pricing environments is crucial, as is having a general knowledge of market pricing to ensure the pricing offered to the customer is competitive.

Find ways to compete on factors other than price. When a discount-seeking customer comes knocking, the finisher may benefit from finding other ways to balance the price/value relationship. Rather than slashing the price, consider strategies to offer more value for the same price.

Perhaps rather than discounting price, the finisher offers to maintain the current price for an extended period. In other words, say, “I’m sorry, I can’t lower the price at this time but what if we agree to hold it steady for the next 24 months?”

Before adjusting price, consider a concession on an energy or environmental surcharge. “My hands are tied on the unit price and I can’t waive the energy surcharge forever, but I can forgo it for the first 12 months if that helps.”

One finisher hosts monthly virtual best practices group sessions in which attendees learn more about surface finishing. Offering up no-charge attendance at such events is a strategy to show a customer value without adjusting unit price. Another finisher who operates its own pick-up and delivery service offers to waive the transportation fee for the first six months of the relationship and another offers free quality certifications rather than negotiating on unit price.

Of course, there’s always the option of lowering an up-front fixturing or racking charge in exchange for a long-term commitment from the customer; not ideal but still better than adjusting unit price.

One gets the picture. Rather than offering a discount with which the finisher must live forever, offer value that results in little incremental cost to the finisher and for a set period.

And one other thing. While the finisher should avoid the temptation to offer discounts, she should never miss an opportunity to ask her suppliers for one. It’s amazing how many of them will just roll over and drop their price.