"Discounting" is always a popular, and contentious topic, and is the theme of our summer poll on LinkedIn. If you are interested in taking the poll before you read on, click here.
We choose the four possible answers for the poll with some thought.
- List prices are intentionally set high
. - Upper management pressure for revenue
. - Sales defaults to price cuts
. - Companies not organized to sell on value
.
Of course several people said "Hey, where is the 'All of the Above'" button. We also wanted to put in our own answers:
- Because companies need a platform to provide sales people with the messages and data that they need to sell on value and most have not done this
.
or
. - Because many companies are internally focused on costs, and not externally focused on the value they provide their customers or what their competitors are doing, left without support, sales uses the tools it has available, one of which is discounting
But to include these answers would not have provoked the vigorous discussion that we wanted, and indeed, that we got. And one might say that they are just elaborations on "Companies not organized to sell on value."
The chart below shows the data as of the afternoon of July 14, 2011. Click over to the survey to get the current result.
Not surprisingly, most people selected "Companies not organized to sell on value." But digging into the comments, there are some very good cases made for the other answers.
List prices are set intentionally high
In many industries, the list price is set high to establish a reference value and leave room for discounts. This is standard pricing psychology and it can also be a good value-based pricing practice. One can set the list price high and then provide discounts to bring price and value in line.
Sales default to price cuts
Here most comments turned on the truism that sales people are coin operated and they behave as they are paid to behave. Most sales people are compensated on revenue, not margin, so what did you expect!
The other interesting set of comments was around Procurement and the power of the procurement function inside B2B. Procurement staff are well trained, have good negotiating skills, and frequently have more data available than the poor sales person. The sales person is motivated to get a sale, the procurement person is motivated to get a discount, the result is --- discounts. The only way to deal with this is to better prepare the sales force with targeted (not general) value messages and with data. Sales needs 'unique value propositions' that it can use in the sales negotiation.
And this of course is the LeveragePoint solution.
