|Helping Manufacturers And Distributors Improve Sales Performance And Profitability 800-867-2778 Issue No. 43|
Breaking The Discounting Habit©1996-2008 Industrial Performance Group
How training can help stop profit margin erosion
Declining profit margins are a major concern for most businesses. Despite this concern, most sales managers truly believe their salespeople are selling value rather than price.
Price discounting is the primary cause of profit margin erosion.
The question at the front of everyone's mind is this: "If our salespeople are selling value, why do they need to offer discounts and extras to get sales?"
Discounting is a habit
What is a habit?
A habit is something we do automatically in response to a specific situation. Habits are acquired over time and can be difficult to break.
For example, when a customer demands lower pricing, there are basically two things a salesperson can do. They can provide the customer with a dollars-and-cents reason to pay more, or they can discount the price.
The majority of salespeople cannot provide customers with a dollars-and-cents reason to pay more for their products - not because they lack the desire, but rather because they simply don't know how to do it.
Extraordinary time, energy and dollars have been spent training salespeople to sell features and benefits. But if customers are not aware of the dollars-and-cents value they'll gain from these features and benefits, they will view this product as just another commodity. Once a product takes on the commodity status, customers will do everything they can to reduce the PRICE.
When a salesperson lacks the ability to overcome this downward price pressure, they experience fear whenever they encounter it. This fear stems from their sense that they will lose the sale unless they do something. The typical knee-jerk reaction is to discount the price and throw in a few extras to sweeten the deal.
If this results in getting the sale, offering price discounts and throwing in a few extras quickly becomes a routine the salesperson performs automatically whenever they encounter price pressure. Over time, this routine develops into a bad habit that the salesperson is largely unaware of.
In addition to shrinking your profit margins, price discounting creates a false perception in the customer's mind about what your product is really worth.
Breaking the discounting habit
Salespeople develop the discounting habit when they don't know how to respond to downward price pressure.
In order to break this habit, salespeople need to learn how to overcome price pressure by giving customers a dollars-and-cents reason to pay more for their product.
A dollars-and-cents reason to pay more
Customers have been hearing the promise of added value from advertisers and salespeople for the past twenty years. Yet in reality, this promise is rarely delivered on in a measurable way.
Telling the customer that you are a value-added supplier has absolutely no affect on price pressure. In fact, most value-added suppliers find that they are doing more for their customers and making less due to extended terms, additional services and deeper discounts.
There is only one form of value that can be used to overcome downward price pressure: dollars-and-cents value.
Dollars-and-cents value is delivered to customers by helping them improve their performance, reduce their costs and/or by reducing their exposure to risk and liability.
Dollars-and-cents value comes from your products, as well as from the information and services you provide.
The good news is you probably are delivering value to your customers. However, your salespeople need to know how to calculate and communicate the dollars-and-cents amount of this value.
Give your salespeople what they need
Selling is hard and becoming more difficult due to customer consolidation and the ever-increasing power of purchasing departments. Price pressure is intense and shows no sign of letting up.
Everyday your salespeople fight a battle they may not be prepared for. Wouldn't it be easier for them to defend your profit margins if they had the knowledge and skills they need?
Perhaps it's time to make an investment in your sales force.
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