Protecting your business profitability – 5 alternatives to discounting

Price cut

With customers increasingly cost-savvy and happy to shop around, how do you defend your prices against those pushing you to discount?

In recent times…

  • the greater availability of pricing information online
  • more and more suppliers for every need and purchase and
  • customers’ keenness to undertake more research in the buying process

…has meant customers now show greater confidence to question price and get into a pricing discussion when buying something.

So how should you respond to a customer who is pushing you to discount your price?  Should you cave in to their demands to secure this sale?

 

The implications of accepting the ‘discount’ challenge

A discount may help your short-term revenue, but over time it can seriously affect your profitability and chances of growing the business further.  Also, consider whether you will be able to stop at this one discount, or if your customers will then keep pushing you to shave more and more off your prices.

And what does that discount say about your original price and the value it represented?  You may find that by discounting, you are suggesting a façade – that in reality your prices are there to be knocked down and the quality of your offering justifies this.

 

Resisting the urge to discount

Having worked with many businesses over the years, here are 5 ways which can help you resist the urge to discount and protect your profitability in the long-term…

 

1. Be confident

If you feel unsure about your price and whether the customer will pay it, this will become apparent to them.  To help boost your confidence investigate what other rivals are charging for the same products or services.  One company we helped undertook a mystery shop on their competitors just to see what that rival offering included for the price and to identify how their approach differed.

Where there is very little difference between you and the competition, look at your business model and see if you can tweak components of how you put the product or service together to create greater perceived value for money for it (see point 5).

If your product/service does indeed represent a fair price in the market, and you understand how it differs from competitors’ offerings, you can be more confident in defending your price.  You will also be more confident if you understand your profitability threshold and have produced the product/service in the most efficient way to arrive at a fair price for your customers and your business.

 

2. Check what the customer is comparing your price to

If a customer says your product/service is too expensive, it is important to explore what they are comparing your offering to.  If you understand your competitors’ offerings you can then articulate how your approach is different and educate the customer on the differences this price reflects.  It may be that the customer isn’t comparing like for like.

Going back to the example of the company who did the mystery shop on their competitors, the insights they gained enabled them to pinpoint exciting points of difference and added value which their rivals weren’t providing. They were then quick to make the most of these in their marketing and sales messaging.

In time this insight helped them to convert more sales, as additional free services and support they had traditionally built around their product offering, now made their price represent greater value for money from the customer perspective.

The more insight you can gain from customer as to how they view this purchase (and what they’re looking to gain from it); the more opportunities you’ll have to identify how competitors do not satisfy their needs as well as you do.

 

3. Really emphasise the wider value of your product or service

Throughout the sales process, it is important to stress the wider benefits the customer will gain from this purchase.  If you feel a customer is going to be sensitive to the price, ensure they understand how, say, this purchase will save them hassle or time. It may be the purchase will help them to solve an issue they have, or achieve something as effortlessly as possible which they have been failing to accomplish.

Don’t underestimate the value of time in people’s lives.  Many are so busy and with little spare time available.  If purchasing your product or service will save a customer time, then quantify that time-saving.  If you can, try and quantify that time as a monetary value, or in terms of what else the customer could then be getting on with.  Many will be impressed and subsequently feel this purchase is a ‘no-brainer’.

We work a lot with lawyers and accountants who don’t have the reputation for being cheap, but who do have a reputation for helping their clients to save time and money.  This is particularly the case if those clients did their accounts/legal work themselves… and then got them wrong.  Think of the cost and time implications which would ensue in order to sort the mess out and fend off fines or demands from the likes of HMRC or an employment tribunal.

 

4. Change the spec if you change the price

If you are really being pushed to lower the price, then change the spec of your product or service to arrive at a cheaper rate.  This will demonstrate you are indeed charging a fair price to begin with and a drop in price can only work if the components of the product or service change.  If you are offering a service, see if the customer wants to take on an element of the assignment or project themselves, so your team doesn’t (and so the price can drop).

 

5. Develop your product or service into a package

The rationale here is to demonstrate greater value around your offering, so people think they’re getting more value for money from you.  This isn’t about fielding the lowest price, it is about creating low-cost add-ons and further service features which you wrap round your product/service so overall it feels a really good deal.

The challenge though is to find those add-ons which don’t then eat significantly into your profitability and which impress the customer.  Some good examples we’ve seen include:

  • Free training or help with installation (on purchases of a software product)
  • The offer of spreading the fee over a series of payments to help the customer’s cash-flow
  • Entry into an exclusive customer club who get invited to special events and receive first tasters of new product ranges
  • A free cake tin for purchases of over a dozen cupcakes

Whatever elements you build into your package, don’t forget to articulate the value of them to the customer so they feel they are making a saving in some way (just not via a discount of your product or service).

 

Summary

Pressure to discount your prices is unlikely to diminish. Price information is freely available to customers online and they are therefore savvy about what offerings like yours cost.  The challenge then is to remain competitive and ensure your business operations are run efficiently so you protect your profitability where you can.  You also need to monitor regularly what the competition are doing.

One other thing to consider is if you are really reaching the type of customers who will be happy to pay your prices.  This involves re-evaluating your target market and how you come across in your marketing.  If you ‘look and feel’ cheap and cheerful in your branding, key messages and approach, then people will expect you to operate at the lower end of the price range.

If, however, your approach demonstrates exceptional quality and an outstanding customer experience, they will be more comfortable paying a premium price.  This isn’t a case of dressing mutton up as lamb.  It’s about being clear what your proposition to your market is and consistently delivering on that so the price you charge is perceived to be a fair one…. and you can be confident of that.

For more pricing and business tips do contact us or tel. 01483 429111.