why discounting is killing your businessthe question on your customers’ lips won’t be “where...

An eBook by

WHY DISCOUNTING

IS K ILLING YOUR

BUSINESS

Discounting as a pricing tactic is as old as the sales

profession itself Your ever-demanding customers are

after a good deal and your salespeople are gagging for

a quick win Offering specially-reduced prices can be

powerful therersquos no denying it Wersquove all seen the hordes

of people racing to supermarkets on Black Friday elbows

firmly engaged and ready to holler at any unsuspecting

fellow shopper that might dare to reach for the same

toaster as them

In reality though discounting is killing your business with

every cent you knock off your list price for a what will be a

very short-lived spike in sales

The wholesale distribution industry is one rife with

competition competition that will likely have the same

product or one very similar to yours on offer In such a

bustling market your customers are all powerful and they

can chip away at your bottom line with very little effort

playing you against your competition in a never-ending

price war So itrsquos not surprising that many wholesale

distributors think the way to see light at the end of the

tunnel is to cut prices to get a deal over the line

Donrsquot wage a price war why discounting is killing your business

1wwwsales-icom

W H Y M A N U FA C T U R E R S A N D

D I S T R I B U TO R S D I S C O U N T

Your boss Your sales director Your finance team More

often than not senior management will dictate pricing and

simply force this onto your sales team and subsequently

your buyers However without any understanding of the

pricing strategy you should be adopting setting a price can

end up being nothing more than a shot in the dark for most

departments of your business

Your sales director will likely look to set the price as high as

possible to generate the most revenue the same goes for

your boss and your finance team

A price too low and yoursquoll be throwing money away Too high

and yoursquoll see a dip in sales volume Itrsquos a tricky game to get

right and should involve a team that know what constitutes

an acceptable price for your customers


2wwwsales-icom

Who dictates your pricing

1 What value will your product or service

bring the buyer

2 Are your customers price sensitive

3 What are you doing differently to your

competition

4 Is your customer willing to pay $XYZ for

your product

Theory suggests that your marketing team should control

and dictate the pricing of your products Letrsquos go back to

your high school Business class Remember the 4Ps that

your teacher probably prattled on about for at least a

couple of lessons These 4Ps of the marketing mix are what

the crayon-wielding creative ninjas live by product place

promotion and PRICE

Your marketing team will always have an ear to the ground

They know your customers inside out your market like the

back of their hand and competitors like their closest friends

A bit of market research here some sneaky competitor

analysis there ndash your marketing team really are in the best

position to dictate your pricing

This doesnrsquot mean that your management team or finance

gurus should be left out altogether but marketing should

have the overarching ability to dictate the price of your

product or service depending upon seasons trends or

competitor activity

When coupled with a smart value positioning and some

really intriguing promotion price can end up being one

factor of many rather than THE deciding factor for your

customers when theyrsquore in the market for your products

Who should dictate your pricing Things to establish before setting a price

5 How much margin do you need to make

selling your product worthwhile

W H Y I S

D I S C O U N T I N G

K I L L I N G YO U R

B U S I N E S S

4wwwsales-icom

Discounting no matter how marginal can and will kill your

business A bold statement we know Wersquore all material

people We like stuff And we like to get said stuff at the best

possible value But good value doesnrsquot always mean the

lowest cost

But when your customer utters the words ldquohow much is itrdquo

your answer as a product salesperson can (sadly) dictate

the future of your deal When followed swiftly by a sharp

intake of breath and ldquowhat can you do on the pricerdquo many

salespeople will ldquosee what they can dordquo and usually offer

some form of discount package shaving dollars off your

margins

Itrsquos killing your business Herersquos why


Discount to the detriment of long term profits

While great for short term sales spikes discounting

will ultimately hit your long-term profits hard

In discounting yoursquore not fostering a long-term

relationship with your customers ndash yoursquore having a

fling with a lsquodeal shopperrsquo who wonrsquot ever call you

back Plus why should the fly by customer pay less

than an existing customer who gives you repeat

business on a regular basis

Yoursquore commoditizing your business

In the wholesale distribution industry intense

competition comes with the territory But

undercutting competitors wonrsquot do you any good

Low value products can in turn lead to a low value

company with customers fixated on price with low

expectations and little to no engagement with

your brand Yoursquod never refer to your products as

mere lsquocommoditiesrsquo so donrsquot start commoditizing

your business with discounts

Raises uncomfortable questions

Say you cut prices by 20 The question on your

customersrsquo lips wonrsquot be ldquoWhere do I signrdquo instead

itrsquoll be ldquoWhat was your mark-up beforehandrdquo

Itrsquos not a question any wholesale distributor ever

wants to be faced with is it If yoursquove got the ability

to slash prices at a momentrsquos notice customers

can become wary about how much profit you

were making before making you unstrustworthy

Customers will bide their time for lower prices

If yoursquove discounted before chances are yoursquoll

consider doing it again for that elusive spike in

your sales volume Your customers are savvy

beings and will wait patiently for you to discount

again Think of Black Friday people bide their

time knowing that a discount is coming soon Your

sales will tail off in periods when yoursquore not offering

discounts and only spike when you cut your prices

Do you want to be a discount brand

Lowering your prices essentially makes you one

Discounting heavily can damage your brand and

sully everything you stand for as a company

Most people value things based on price and

knockdown prices can give your customers the

idea that yoursquore becoming a discount brand

If thatrsquos not what yoursquore aiming to do will your

customers be willing to step up and pay full price

when yoursquore not discounting

More discount = less profit

Imagine your profit margin is 30 If yoursquore offering

a 20 discount your profit margin then becomes

10 As the cost of raw materials continues to rise

along with sharp increases in labor costs can you

really afford to cut your prices In short yoursquoll have

to increase how much you sell to maintain the

same level of revenue Meaning more production

costs more time and a lot more effort

5

Sometimes it can seem like therersquos no alternative but to

offer a discount to secure a sale With the threat of your

competition ready to lure away your customers as soon as

you deny their request for a discount how can businesses

today really say no

Competing effectively means doing more than just offering

a cheaper deal Have competitive prices by all means but

there are things you can be doing to avoid the pitfalls of

discounting and make a difference with your customers


wwwsales-icom

H O W TO AV O I D

T H E P I T FA L L S O F


Increase your product range

A wide product range can encourage your

customers to spend more of their money with

you If yoursquore selling for example nuts and bolts

to your customers broadening your product range

to include washers screws and tools can incite

your customers to spend more money with you A

wider product range makes it easy for them to get

everything they need from you

Think of the likes of Walmart and other traditional

grocery stores They no longer sell just groceries

you can pick up pens clothes TVs and even

garden furniture at most superstores today

Sharpen up your positioning

Make sure you fully understand your buyers What

are their challenges What makes them tick

What are their goals Armed with this knowledge

you can rejig your positioning and offer a product

they canrsquot live without

Make your product a lsquomust haversquo Make it easy

for your customer to get pepped up and excited

about your offering Theyrsquoll be so swept away in the

excitement that the price will be an afterthought

Add value

This ties in nicely with the previous point As a

wholesale distribution salesperson you need to

understand exactly where your companyrsquos offering

fits in with their day-to-day lives How will it change

their lives Will it save them time Money Effort

Knowing precisely what your product can bring to

the table will make those hellish price negotiations

a thing of the past Remember that a lower price

doesnrsquot always mean better value in fact a higher

price is often attributed to superior quality

Let your customers do the talking

Your existing customers are your biggest weapon

when closing a sale Already advocates of your

brand sharing case studies testimonials videos

and references from people already using your

product or service can be a game-changer when

yoursquore selling Hearing how good your offering is

from other users is incredibly powerful

E X A M P L E O F


G O N E W R O N G

Franchisees of the fast-food giant McDonaldrsquos claim that

they are being forced to offer too many discounts Getting

customers through the door and making profitable sales are

two very different things As private investors in McDonaldrsquos

franchises these individuals are reporting huge losses

compared with the same quarter of last year simply by

reducing their prices

While this doesnrsquot directly impact customers itrsquos clear to

see how discounting can negatively affect a companyrsquos

bottom line If companies the size of McDonaldrsquos feel the

pain of discounting whatrsquos to say your wholesale distribution

company wonrsquot feel the same

Instead of discounting look to McDonaldsrsquo famous up-sell

ldquoWould you like fries with thatrdquo This simple question must

have made the company billions over the years is there a

similar question you could be asking

7wwwsales-icom

271

02

08

$15

Restaurants taken part in the discounting scheme

Growth slowed by 02 in the third quarter

They expect a 08 decline in sales in the fourth quarter

Labor costs on average $15 per hour meaning discounting can be difficult


M C D O N A L D rsquo S

E X A M P L E S O F

B R A N D S T H AT

D O N rsquo T D I S C O U N T

9wwwsales-icom


Technology giant Apple has never offered a discount Yet

come iPhone 8 release day you can guarantee people

around the world will be camping overnight to be first in

line to buy one at list price (or even more on eBay when

stock is low) Apple products have become a cult item that

customers are willing to pay for From the experience in

store to aftercare and support Apple doesnrsquot offer discounts

to its customers because they just donrsquot need to

ldquoItrsquos up to us to convince people to maybe spend a little

more for a materially better experience of product And we

think that people will do that if the product is great and if itrsquos

messaged appropriatelyrdquo

- TIM COOK CEO OF APPLE

Apple

Luxury fashion brand Louis Vuitton will never offer a

discount Having faced near bankruptcy in the early 1970s

due to private franchisees marking up prices on their luxury

handbags and luggage and pocketing the difference After

a swift management shakeup Louis Vuitton became a

vertically integrated company that today owns their entire

supply chain from factories to shop floors in department

stores Customers canrsquot purchase Louis Vuitton products

anywhere but official outlets or authorized concessions ndash

making it impossible to discount

ldquoControlling the channel meant you controlled the price

Without a middleman margins are higher offering a

plumper profit cushion during downturns This practice also

confers exclusivity since you can buy a given product only

from an authorized dealer where price is fixedrdquo

- HENRY RECAMIER 1977 OWNER OF LOUIS VUITTON

Louis Vuitton

Business magnate founder of Tesla Space X SolarCity

and Paypal and all round nice guy Elon Musk is one of the

greatest and most humble businessmen of our generation

Musk recently penned a lengthy email to his Tesla team

about the very reasons why they never offer a discount on

their cars Itrsquos worth the read We promise

ldquoThe acid test is that if you canrsquot explain to a customer who

paid full price why another customer didnrsquot without being

embarrassed then it is not rightrdquo

- ELON MUSK FOUNDER OF TESLA (AND OTHERS)

Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8

Offering discounts means poor loyalty and loyal customers spend 67 more than new ones with

repeat purchases

Source wwwinccom

Promotions often have little impact on buyers ndash 40 would have bought an item anyway promotion or no promotion

Source wwwinspectorinsightcom

A 1 pricing discount results in a decrease of 8 in operating profits for the average company

Source McKinsey amp Company

If volumes remained stable a price rise of 1 would an 8 increase in operating profits


A pricing strategy is something thatrsquos often decided without

much thought within many businesses Itrsquos not an easy task

to get right but business owners often fail to anticipate how

quickly profit margins can disappear when they give away

a harmless concession here and there such as 10 off their

usual list price

For a business with a 20 gross margin a 10 discount gives

away 50 of their profits as raw materials and operational

costs remain the same Is a 10 discount going to increase

sales by 50 Probably not


11wwwsales-icom

How discounting eats into profits

Costs

80Costs

80

Profit

20

Discount 10

Profit 10

In short discounting is bad Adding value is good Knowing

your customers inside out is key to providing an experience

that will keep your customers coming back for more and

negating the need to cut your prices just to get that elusive

ldquoyesrdquo

Be more proactive in your sales approach and pre-empt your

customerrsquos next purchasing move Using sales technology

can help you to be more proactive yoursquoll be able to avoid

those awkward discount conversations altogether This kind

of software can help you to get ahead of your competition

before they even have a chance to undercut you and start

a price war Whatrsquos more if yoursquore being more proactive

towards your customers theyrsquoll trust you more and in turn

become more loyal If this is the case even a low price wonrsquot

be effective in securing their business

Some of the most successful companies in history have

never once offered a discount and theyrsquove stayed true to

their morals A quality product that will help improve or

better any aspect of your buyersrsquo lives shouldnrsquot need to be

discounted

12


wwwsales-icom

TO S U M M A R I Z E

ABOUT ldquoIt is a no brainer for distributors and the personal service is outstandingrdquo

sales-i is sales performance software designed to make

every sales call more personal and profitable

sales-i enables sales professionals to clearly identify and

target high quality sales opportunities within their current

customer base Equipped with customer buying behavior

alerts salespeople can make insightful personalized

quick business decisions realizing repeat sales reduced

customer attrition and maximized profit margins as a result

sales-i will change the way you sell Get in touch for a free

online demonstration and judge our software for yourself

tellmemoresales-icom

wwwsales-icom

- Scott Bennett Bennett Auto Supply

ldquoOne call using sales-i yielded a $5000 order from an account that was leaving us for a competitor he felt we did not care sales-i showed him we didrdquo

- Ron Dahlhaus Buy Wise Auto Parts

ldquoWersquove closed off the financial year 58 up on the previous year and attribute this directly to sales-i and their sales performance softwarerdquo

- Larry Sexton Office 360ordm

We are the leader in sales performance for distributors and wholesalers


Discounting as a pricing tactic is as old as the sales

profession itself Your ever-demanding customers are

after a good deal and your salespeople are gagging for

a quick win Offering specially-reduced prices can be

powerful therersquos no denying it Wersquove all seen the hordes

of people racing to supermarkets on Black Friday elbows

firmly engaged and ready to holler at any unsuspecting

fellow shopper that might dare to reach for the same

toaster as them

In reality though discounting is killing your business with

every cent you knock off your list price for a what will be a

very short-lived spike in sales

The wholesale distribution industry is one rife with

competition competition that will likely have the same

product or one very similar to yours on offer In such a

bustling market your customers are all powerful and they

can chip away at your bottom line with very little effort

playing you against your competition in a never-ending

price war So itrsquos not surprising that many wholesale

distributors think the way to see light at the end of the

tunnel is to cut prices to get a deal over the line


1wwwsales-icom

W H Y M A N U FA C T U R E R S A N D

D I S T R I B U TO R S D I S C O U N T
















2wwwsales-icom



bring the buyer



competition


your product







promotion and PRICE











competitor activity








W H Y I S



B U S I N E S S

4wwwsales-icom





lowest cost







margins



























































5





today really say no






wwwsales-icom

H O W TO AV O I D


























Add value



















E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom























2wwwsales-icom



bring the buyer



competition


your product







promotion and PRICE











competitor activity








W H Y I S



B U S I N E S S

4wwwsales-icom





lowest cost







margins



























































5





today really say no






wwwsales-icom

H O W TO AV O I D


























Add value



















E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








W H Y I S



B U S I N E S S

4wwwsales-icom





lowest cost







margins



























































5





today really say no






wwwsales-icom

H O W TO AV O I D


























Add value



















E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








4wwwsales-icom





lowest cost







margins



























































5





today really say no






wwwsales-icom

H O W TO AV O I D


























Add value



















E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








5





today really say no






wwwsales-icom

H O W TO AV O I D


























Add value



















E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








E X A M P L E O F


G O N E W R O N G

















7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom
























7wwwsales-icom

271

02

08

$15







E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








E X A M P L E S O F

B R A N D S T H AT


9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








9wwwsales-icom















Apple

















Louis Vuitton











Tesla

10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom








10

STATISTICS

wwwsales-icom


67

40

1

8


repeat purchases

Source wwwinccom












usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom













usual list price






11wwwsales-icom


Costs

80Costs

80

Profit

20

Discount 10

Profit 10





ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom












ldquoyesrdquo















discounted

12


wwwsales-icom














wwwsales-icom




















wwwsales-icom








why discounting is killing your businessthe question on your customers’ lips won’t be “where...

Documents