Home > Pricing Strategies > A Freebie By Any Other Name is a Discount

A Freebie By Any Other Name is a Discount

by Victor Antonio

Victor Antonio Value Centric Selling Sales consultant and trainer, atlanta georgiaIn every exchange of commerce there is a mental buyer and a mental seller.  If a salesperson tries to sway his client to buy the product, than the salesperson is really the seller.  But if the buyer convinces the salesperson that, ‘Now is not a good time’ Or ‘Let me think about it and get back to you’ then the salesperson has been sold by the buyer on the fact that they can’t buy.  The buyer has sold the salesperson on his or her inability to make a decision.  And if the salesperson accepts that position, then the salesperson has been sold.  An ironic point of view don’t you think?

Taking it one step further, if a buyer convinces that salesperson that he should get a better price, then the buyer has sold the salesperson on the fact that his money has more value than the seller’s product.   When a seller can only close a deal on price, then it is almost with certainty that the seller has been outsold by the buyer.

A discount is proof of ineffectual selling; proof that a some sort of sales injustice has been committed.  The heftier the discount the bigger the crime.  Ideally, for a true value centric salesperson, a discount is the nuclear option; used only in cases of extreme emergency when all other options for closing the deal have been exhausted, including the sale of value first.  Then and only then should a discount be used to close the deal.

When we think of a price discount we typically think in terms of how much the price was reduced; by what percentage.  But discounts come in many different forms.  And sometimes these alternative discount methods are not categorized as such, which is why they’re overlooked or ignored but the impact on the bottom line is just as deleterious as if an actual discount were granted to a client.

real cost of discounting price

Not Really!

Clients like to ask for ‘goodies’ when they buy our product or a service.  There’s often an entitlement mentality on behalf of the client who asks and ‘expects’ the salesperson to sweeten the pot with a few extras if they want the order.   From a sales perspective the request may seem harmless, but the impact the company is anything but nonetheless.

Discount alternatives come in all shapes and sizes which is why we need to be aware of what they are and how they impact the company’s bottom line.   Here are a few discount alternatives to put on your radar:

  • Free Training and Resources:  By offering free training, you company has to absorb the cost associated with training your clients at no cost.  The facility cost where the training will be held, the cost of the instructor, the cost of the material produced and to top it off, the opportunity cost of doing free training instead of working on something else that could drive revenue.
  • Free Online or Phone Support: The personnel required to answer the phone and provide client support is another cost that reduces margin.  The cost of a maintaining a phone system and creating an online support system which my have to be integrate with the company’s existing Customer Relationship Management (CRM) or other client maintenance database system will add to the cost.
  • Extended payment terms or Financing:  By deferring when the company gets paid, the opportunity to use that cash flow to either earn interest or utilized for other expansion projects will cost the company money.  By not having cash on hand, the company might have to tap into the line of credit at a higher interest rate.
  • Multi-year Contract with Price Discounts:  By offering the client a price sliding scale over a given period of time only serves to exert more pressure on the company to maintain the necessary margins to make the business line or product profitable.
  • Volume purchases with volume discount levels: Given discounts based on a high volume purchase assumes that the direct cost with manufacturing a product will not go up. False.  Driving more volume through the factory impacts production time, increase material demands and requires more man-hours to meet the demand.  These are just some of the direct costs associate d with higher volumes.  To discount for higher quantities only serves to exacerbate the pressure on maintaining good product margins.
  • Free product or software upgrades: All product (software) upgrades cost time and money to create.  Giving away upgrades may be impacting your margins more than you think.  Although the developer can rationalize that the cost of the upgrades will be spread across a larger client base and will therefore be minimal is a legitimate way of thinking.  But when you start adding up a lot of ‘minimals’, over time they don’t become so minimal.
  • Zero Inventory:  Offering to carry inventory for the client ties up your company’s money.  Slow inventory turns impact cash flow and uses up valuable inventory space.  Salespeople need to see every product on the shelf as a stack of dollar bills with a ‘do not touch or use me until sold’ sign to really understand how high inventory equates to a warehouse of stored money that can be use and loses value every day it sits on the shelf.  A client’s value, or perception, of a product goes down over time. The longer you hold the product the less likely it is the client will pay you what you original asked for.

A Value Centric mindset requires salespeople to start thinking about discounts not only as a percentage of a price, but also becoming aware that giving away free services or extending payment terms is another form of discounting.  And whether it’s a price discount or some sort of free deal, all contribute negatively to the company’s cash flow and margins.

Categories: Pricing Strategies
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