The problem with offering discounts
Discounts and low prices are not the same things. We all know the problem with competing on price, and discounts mean the opposite: the price is higher than desired, so a discount will allow the client to make the purchase.
In which case, discounts are a safe negotiation tactic, right?
Wrong.
Let’s take a closer look at what happens with discounts.
Why you offer discounts
The most common objection to a sale is the price of the product. It’s an easy thing for an uninterested person to point to and end a conversation. It comes naturally, at this point, to want to offer a better price.
People offer discounts for myriad reasons, such as:
- Because you want the client: you made it this far in the negotiation or conversation. And nobody likes to hear the word “no”. Every lost client is lost revenue, right? Better to offer a discount than to not get the sale at all.
- In exchange for exposure: this client will tell people about me, or post on social media, or mention me at speaking engagements, or put my logo on their website. I can offer them a lower price because I get something else out of it.
- They can’t afford you: a client genuinely can not afford your service, and you want to be able to serve that client. This is the only instance in which a discount could be justified, but only after determining how this one offer fits in with your overall business strategy.
Why you shouldn’t offer discounts
In the same way that low prices are a long-term problem, discounts are a hole from which you will never emerge. Here are some reasons why.
- They will tell their friends: as with low prices, your clients will tell their friends about your discount. Is the discount the main reason they bought your service? That means it will be their main talking point about your service.
- You will never get them to normal spending: the more significant the discount, the less likely it is that you will ever bring this client onto your standard pricing. With the presence of any discount, expect each sale or renewal to stay at the lower range.
- They will negotiate everything: not just a new sale or renewal of your service, but everything additional too. If you have add-ons or new offers, if the client wants a new service or function from you, they are used to the discount now, and they know you are willing to offer discounts, so they will fight for one every time.
- You will overwork for them: you won’t be working any less for this client than for your others. For one thing, because that is just how you work; but also because of the point just mentioned, that this client will want to negotiate on everything and will take up more of your time.
- An administrative nightmare: instead of standard invoicing practices, and forecasting, and general administrative management, this client becomes a hot-bed of exceptions.
Most importantly
They will undervalue you: what has happened with a discount is the client saying “I don’t think your service is worth what you are asking”, and you replying: “I agree”.
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This explains clearly the reason it’s so important, in referral marketing, to tell your price, and not to discount for members of an association you belong to: when they talk about you, they’ll talk about the discounted price. The result is the painful repetition of low-priced referrals.
My largest competitor runs a “sale” once a year to stimulate new business and augment renewal business. My opinion is: newer clients should never pay less than more established, loyal clients.
Yes! Fully agree, on both points
1 – Even best clients, with discounts, will fall into all of these traps
2 – Indeed, this particular model of discounts not only runs into all the problems above, but also rewards the wrong people.