Instead of Discounting, Use the Three Options Strategy

Note: I wrote this piece a number of years ago and I am still receiving feedback from salespeople, sales managers, and senior executives that it works well in today’s environment, no matter what sales methodology they are using.  In fact, ESR’s custom advisory services projects are always priced this way.  Our clients really like this approach.

Last minute discounting has become so prevalent that many companies have come to depend on it as their default sales strategy. Employing a go-to-market strategy of being the lowest cost provider is one thing, but dramatic, tactical discounting on every deal will erode your company’s margins and leave you digging a deeper and deeper hole in which your company will ultimately bury itself.

I don’t want to give you the impression that discounting is never appropriate.  Here are three scenarios where it may be required:

1. When a company has mispriced their offering. Let’s face it.  Times have changed. Competition is fierce. And yes, as much as we don’t like to admit it, prices and fees have been forced down in some markets. If everyone else is now selling what you sell for $1.00 and you’re still selling it, just as you always have, for $2.00, and you can’t prove you can deliver a dollar’s worth of additional value for the customer, your pricing is too high—way too high. Call it a discount, or call it a price adjustment, in this situation you’ve got face reality and sell your products at a price the market will bear, or you won’t sell very much at all.
2. As a token concession to close the deal. I don’t see a problem with “rewarding” a buyer for signing an order within your required time frame, for example. Understand, I would much rather provide other concessions that don’t cost my company money and don’t educate my customer that whenever I am going to ask them for an order, I am going to give up part of my margin and commission. But I do live in the real world and understand that for my clients, pricing concessions are sometimes required to get the deal signed.
3. When you haven’t done an adequate job of selling the unique business value your product or service will provide the customer.  I am never happy hearing about situations like this, but if you’ve not done the best selling job, there is some room in your pricing model for a discount, and you need the deal, discounting may be better than losing the deal on principal.

How do you avoid discounting?

To succeed in B2B sales today, you must sell business improvement, not products or services. That means differentiating yourself from your competition in the unique value you, your products and services, and your company can provide toward your customer achieving their corporate, divisional, business unit, department, or governmental agency goals.

Have you transitioned into the mode of creating customer demand by targeting accounts—getting in before they know they have a need, and establishing yourself as a knowledgeable, trusted, and patient advisor?  If not, you’ll continue to be on the receiving end of all sorts of one-sided customer demands, mostly taking the form of answering requests for information, doing presentations, demonstrations, free trials, fighting the constant battle against having your offering commoditized by the customer, and being on the receiving end of strong demands for discounts.

We’ve been taught over the years to bundle our products and services where possible to provide the customer with a single investment number. That way, we were told, they can’t nickel and dime you, and can’t slice up your offering, able to say no to pieces they don’t want or need.  But now times have changed and when you think about it, that’s exactly what you want to do.

If you sell products or services that can be componentized, sold in pieces or modules, or in phases, you’re potentially in good shape.

Scenario

You know your competition is going to come in with a substantial discount, as they have before. Your sales effort must include:

• Assuring yourself that the customer is not making a decision solely or primarily on price. This question must be asked again and again of key decision makers throughout the process.
• Getting agreement from the “real buyer” that you understand their business objectives and that your offering can help them achieve those objectives. This method does not work unless you are dealing with the real buyer.
• Finding unique areas of additional value (on top of their existing requirements) that you can provide through the capabilities of your product or service offering.
• Management support for potentially selling part of your offering now, and the rest later on rather than selling the whole thing at a discounted price.

In cases where you know your competitors will be discounting, you’ll need to offer several investment options to your customer. Alan Weiss, “the consultant’s consultant,” suggests providing three opportunities for them to say yes.

If you offer your prospect three options to buy—let’s say for the sake of labels, Platinum, Gold, and Silver—and you’ve done a good job of selling the business value of your offering—you can avoid having to concede more than a nominal discount.

Your plan here should be not to discount, but rather to back value out of your proposal to meet the prospect’s desired investment level. Presenting three options lets you do exactly that.  The customer gets to determine how much they want to invest and will enjoy the resulting ROI associated with that level of investment.  Be advised that to do this most effectively, you’ll need some political, financial, and competitive selling skills.

Here is a template for the three options:

The Platinum Option

• Gets the customer what they need (and want)
• Highest level of investment.  You might ask for a 10-30% premium over the Gold level for this option, depending on the value you believe you can deliver to the customer.
• All the features, modules, components, capabilities available
• Your best resources
• Quickest time to value
• Priority service: As examples, a special 800 number (like the airline priority clubs), top of the queue, 24 x 7 x 365
• The highest ROI (see graphic)
• Other perks, such as quarterly meetings with your CEO, special invitation events, input into your product development plans

The Gold Option

• Gets the customer all of what they need (and a few wants)
• Budgeted level of investment. This is aimed right at the prospect’s budget level.
• Most/many of the features, modules, components, capabilities
• Proven, talented and dependable resources
• Quick time to value
• An attractive ROI
• Other perks, such as quarterly meetings with your VP of Service, special invitation events

When your prospect tells you your competition has come in with a very low price, you can calmly discuss with them the fact that they have an option (the Silver option) that will provide them with what they need at a competitive price. You will already have differentiated yourself from the competition in a number of areas: understanding the customer’s business, industry, opportunities, challenges, competitive and customer pressures, and built rapport with the real buyer. In addition, you’ve professionally educated your prospect on the risks that befall companies who depend on tactical discounting to win.

The Silver Option

• Gets the customer most of what they need now, and the rest in “phase two,” next quarter or next year, for example
• The lowest level of investment, aimed 10-30% below the Gold level, depending on how severe a discount the competition is going to offer
• Some of your total array of features, modules, components, capabilities.  The rest can be acquired later.
• Talented and dependable resources
• Reasonable time to value
• An ROI that meets their corporate requirements

What will the customer do? The may tell you they want your Platinum option at the Silver price. If you’ve done an effective job selling the business value of your product or service and built a relationship with the real buyer based upon trust, you can look them in they eye and tell them it just isn’t possible. What will they do then? According to our clients, more often than not, the customer will go for the Gold or Platinum option.

© 2012 — Dave Stein — All Rights Reserved

Photo credit: © Olena Pantiukh – Fotolia.com