The discount: a double-edged sword
A study carried out by Practys Conseil among 95 salespeople throughout France shows that price is the number one negotiating variable used. But while lowering a price may appear to accelerate sales and close deals, the impact of such a systematic practice can be catastrophic for a company's margins and overall performance.
Here are the 4 main risks you take when you lower your prices to close a sale:
- jeopardize the life of your product.
Lowering the price to sell more or faster often means jeopardizing the product's profitability, and therefore its life in your catalog. In fact, if you don't compensate the average turnover needed to balance your product with the number of sales, you run the risk of managers shooting on sight in the face of a disappointing income statement, and demanding that your product be discontinued;
- generate sales that are neither sustainable nor profitable.
Customers who buy a product solely for its price generally have little attachment to the brand. This type of customer is often fickle, i.e. difficult and expensive to win over, but very easily inclined to leave for the competition. So it's best to concentrate on winning potentially loyal and profitable customers whose motivations go beyond price: security, pride, etc.
- damage the image of the product or brand.
The price you're willing to pay says a lot about the value you place on a product. Similarly, the price you set reflects the level of quality of a product, its added value or the benefit it brings. Lowering your price can therefore devalue your offer, and affect the customer's perception of your product and brand. This is all the more true in markets for high value-added products and services. When you know that a brand image takes years to build up, it's better to use levers other than price to convince customers;
- discredit your sales policy and your company.
An advertised price is supposed to be a fair price. So be careful not to lower your price too quickly or without real justification, or you'll earn a reputation for either trying to cheat the customer by advertising inflated prices, or for charging prices "at the customer's whim". After that, it's hard to improve your image and margins...
In conclusion, prevention is better than cure...
The companies that win the price war are those that can justify and defend their prices. Sales managers have an essential and often difficult mission in this area:
- set prices on the basis of tangible, defensible criteria: product profitability, competitor prices, customer benefits, corporate sales objectives;
- train sales staff to present their prices in a favorable light, reflecting customer benefits and differences from competitors;
- train sales staff to handle price objections and negotiate the price where appropriate.
In this field, Practys Conseil has developed an approach to price defense that has revolutionized salespeople's results. Read the article: "How to defend your price and preserve your margins".