The dangers of discounting

Discounting as a business practice is so entrenched that I probably don’t need to help you recreate the arguments that justify it.

The dictionary describes the effect well: “to deduct from the amount, cost; to disregard; to make less effective by anticipation.”

Before you succumb to the temptation to win new business by offering a discount take a moment to consider these seven problems associated with discounting:

1.Negotiations over discounts, focuses attention on price—as if that were all that matters. If your only competitive advantage is price, you are in trouble, because price can always be matched.

2.Discounting starts price wars. The company that usually wins is the one with the biggest balance sheet—the one who can afford to hold out the longest.

3.Discounting can affect the customer perception of your service. The less they pay, quite likely the less they will value it.

4.Discounting will affect your profit margins. Consider what would happen if all your competitors met your discounted price—do you think your customer is going to accept any less quality?

5.Discounting may affect the quality of your service. Yet, if you compromise the quality of what you sell, you risk disappointing customers and you may lose repeat business, and lose credibility or gain a bad reputation, or end up spending time fixing complaints. One way or another today’s discounts could rob you of future business, and profits.

6.Discounting may lead to ‘stockpiling’ where customers purchase more than they need while the price is cheap. This will affect demand and potential profits in the future.

7.Habitual discounting can become psychologically disempowering. A reduced price can be a short-sighted ‘quick fix’ that reduces business growth in the long run. Before you discount, stop and think: is this the only way to give value?

Be mindful when you’re offering a discount. Why are you doing it? Is it an investment, and will it net you a greater financial return in the future? Or is it something you do all the time, a thinly disguised (yet noble!) excuse for not charging your worth?

Are you offering a discount as the “lazy way out”—instead of making the effort to explain or demonstrate your value? One of the basic rules of negotiating is that if you are going to offer a discount, you offer a different product or service. Perhaps negotiate different terms, or a shorter guarantee, or longer lead times. Challenge your customer’s proposition for a discount with: “If you want a better price, give me a better order.”

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated.

Byline: Jane Francis is the author of "Price Yourself Right”. To find out more buy the book here.