End of the 'Blue Light Special', The

Agency Sales,  Mar 2008  

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(Sales) Life Without Tactical Discounting

Declining profit margins are a major concern for most businesses. Despite this concern, many sales managers truly believe their salespeople are selling value rather than price. However, price discounting remains the primary cause of profit margin erosion.

An issue of the newsletter published by the Industrial Performance Group, Northfield, Illinois, took aim at the subject of salesmen's habit of discounting in order to get the order. The article maintained that only by training will a salesperson learn to live without this (discounting) tactic.

The Habit

A habit is something we do automatically in response to a specific situation. Habits are acquired over time and can be difficult to break. For example, when a customer demands lower pricing, there are basically two things a salesperson can do. They can provide the customer with a dollars-and-cents reason to pay more, or they can discount the price.

The majority of salespeople cannot provide customers with a dollars-and-cents reason to pay more for their products - not because they lack the desire, but rather because they simply don't know how to do it.

Extraordinary time, energy and dollars have been spent training salespeople to sell features and benefits. But if customers are not aware of the dollars-and-cents value they'll gain from these features and benefits, they will view this product as just another commodity. Once a product takes on the commodity status, customers will do everything they can to reduce the price.

When a salesperson lacks the ability to overcome this downward price pressure, they experience fear whenever they encounter it. This fear stems from their sense that they will lose the sale unless they do something. The typical knee-jerk reaction is to discount the price and throw in a few extras to sweeten the deal.

If this results in getting the sale, offering price discounts and throwing in a few extras quickly becomes a routine the salesperson performs automatically whenever they encounter price pressure. Over time, this routine develops into a bad habit that the salesperson is largely unaware of.

In addition to shrinking your profit margins, price discounting creates a false perception in the customer's mind about what your product is really worth.

Breaking the Habit

Salespeople develop the discounting habit when they don't know how to respond to downward price pressure. In order to break this habit, salespeople need to learn how to overcome price pressure by giving customers a dollarsand-cents reason to pay more for their product.

Customers have been hearing the promise of added value from advertisers and salespeople for the past 20 years. Yet in reality, this promise is rarely delivered in a measurable way. Telling the customer that you are a value-added supplier has absolutely no effect on price pressure. In fact, most value-added suppliers find that they are doing more for their customers and making less due to extended terms, additional services and deeper discounts. There is only one form of value that can be used to overcome downward price pressure: dollars-andcents value. Dollars-and-cents value is delivered to customers by helping them improve their performance, reduce their costs and/or by reducing their exposure to risk and liability.

Dollars-and-cents value comes from your products, as well as from the information and services you provide.

The good news is, you probably are delivering value to your customers. However, your salespeople need to know how to calculate and communicate the dollars-and-cents amount of this value.

Providing the Tools

Selling is hard and becoming more difficult as a result of customer consolidation and the ever-increasing power of purchasing departments. Price pressure is intense and shows no sign of letting up.

Every day your salespeople fight a battle that they may not be prepared for. Wouldn't it be easier for them to defend your profit margins if they had the knowledge and skills they need?

Perhaps it's time to make an investment in your sales force.

Staying Current with the Process

In her newsletter SalesWise, consultant Nicki Weiss maintains that "cold-calling" is hardly an effective sales tool:

In business, as in all areas of life, ideas come and go. What worked yesterday doesn't work today and probably won't work tomorrow.

Take cold-calling, a traditional staple of generating leads and driving sales for manufacturers' reps. When I set up my own coaching and training business five years ago, I cold-called relentlessly. The result? I mostly got voice mail, polite but firm assistants who said thanks but no thanks, or a person at the wrong level.

I followed up with emails, which also were ignored. I got a few nibbles, but nothing major, and my work mostly came from referrals and strategic alliances.

I see other reps continuing to bang their heads against the wall, wasting hour after hour, day after day, month after month, cold-calling without great results. For many, this thankless effort destroys their once positive attitudes, their joy of doing business - and, ultimately, their souls.