Discounting: A World without it
Let's talk about a topic that's near and dear to every salesperson's heart: discounting. It's the secret sauce, the magic wand, the irresistible lure that draws customers in and seals the deal. Or is it?
Discounting has its allure. It helps with price discovery, offering the best possible price for a particular customer. It creates a sense of urgency, with the classic "this price is only available until X date" tactic. And let's be honest, who doesn't love getting a "deal"? It's a universal pleasure.
But here's my hot take: negotiating pricing and discretionary discounting is a highly inefficient, time-wasting, and frankly, a terrible way to conduct business. It's the least efficient method of price discovery. Creating a "customized" quote can consume 25%-30% of a sales team's time, dominating conversations between account executives, customers, and their managers. It's an absolute waste of time for everyone involved.
This clip captures this well.
So, what's the solution? I propose we do away with discretionary discounting altogether. By making price the biggest lever a salesperson has, we're selling the price, not the value or benefits of the product. The sales team should focus on showing customers why the product is awesome and how it solves a problem they care about.
This approach also forces product and pricing teams to price the product commensurate with the market clearing price at which they believe they can achieve their business objectives, whether that's more market share, higher margins, or more profits.
I get that we all love the feeling of a good deal, a price discount, and the sense that we're getting special treatment. But I propose a different approach: pricing tiers or discounting levels that serve the same purpose as discretionary discounting but give the sales team more levers to bring in customers.
Pricing Tier I: Buy More, Pay Less
Volume discounts are nothing new, but having an explicit price tier that unlocks at different volumes, transparently laid out for the sales team with no exceptions, empowers customers and makes it clear what they need to do to access cheaper price tiers.
Pricing Tier II: Buy Again, Pay Less
This tier rewards loyalty and helps with customer renewals. Instead of new customers arm-twisting their way to great discounts while existing customers get smaller ones, we should reward customers who renew their contracts with a new price tier based on their loyalty.
Pricing Tier III: Buy Faster, Pay Less
The biggest objection to eliminating discounting is that discounts create a deadline and accelerate sales. But moving sales faster should be every account executive's job. With so much information online, most customers already have a good idea of what they want and their budget by the time they reach a demo or trial.
Depending on the customer's overall spend capacity, the sales team should offer a lower pricing tier if the customer decides within a certain timeframe, such as 30 days of a trial or 90 days, depending on what makes sense for your business.
These three tiers address most of the use cases sales teams talk about: favorable pricing for larger customers, rewarding existing customers, and creating a sense of urgency in the deal cycle. And this isn't a new concept. Consumer companies and big tech brands already use these levers. It's about getting pricing in front of the customer in a transparent way, showing them the path to cheaper prices, and most importantly, focusing the conversation on customer value and pain points and how your product solves them.
