When Offering a Discount Is a Mistake

Is this the week you absolutely must make a sale before you can make payroll? Could your salesperson’s relationship with a big potential customer be your salvation, but only if the offer on the table is just a little bit sweeter?

Cutting prices may seem like the answer in both situations, but if you’d like a pricing expert’s advice, don’t do it. Hold your price and focus on your customer, not your own issues.

“It’s natural to be desperate when business is slow. It’s never right to show that you are desperate,” said Mark Burton in an interview. The vice president and co-founder of Holden Advisors, a consultancy that helps customers increase revenues and profits through an intelligent pricing strategy, Burton blogs about pricing, and as an owner of a small business, he is particularly sensitive to small-business owners’ worries.

If you cut prices when sales start to fall, he said, “you can actually harm the business over the long term.”

That is particularly true in a business-to-business environment. The reason: In B2B selling, you have more control over the framing of the customer’s perception of value, and you can help him or her see your prices as reasonable. Cut prices to make payroll and you’ll lose the customer’s confidence in the value story you have presented and built.

In a consumer environment, psychological factors that are “more qualitative and more attitudinal” will influence whether the customer pays a higher price for your product or spurns yours for the less expensive brand at the dollar store. In B2B, the decision-makers care about a financial or “more of an economic perspective, so it gives you the opportunity as a small-business owner to start looking at what you do … that helps your customer become more profitable,” Burton said. Emphasize ROI, how you can help streamline their processes, or testimonials that describe savings realized.

Don’t Focus on Internal Needs

The temptation to discount is great when you, as a business owner, are not confident in the price you are presenting.

“The danger that small-business owners can fall into is they start to look at things too internally—what do I need to get by, to be happy, and to turn an OK profit?” Burton said.

That’s an internal focus, and that’s a mistake. Customers care about three things: the offer, the product, and how valuable the offer and product are. Lose focus on the customer’s concerns and “you’ve already lost the pricing battle,” he said.

Don’t Cut Prices to Lure Big Customers

You might decide to lowball the price in order to get a foot in the door with a big customer. Burton argued that you should hold the line in your pricing negotiations. Do your homework and find out what is attracting that customer to your offerings, then work on a pitch that homes in on that.

“If you’re too aggressive on pricing in the first instance,” said Burton, you’ll never make it up, because “that low price becomes the starting point for all subsequent interactions.”

Burton acknowledges that this is a contrarian viewpoint.

“You’re going to have people in your organization who want to go banging on the doors of the big companies,” he said.

But you’re better off building your business with a series of smaller transactions to smaller customers, who are both more loyal and more willing to pay your prices.

“You have to be cautious of becoming captive to a large account because it can be very difficult to grow the business beyond that,” Burton said.

If a big account comes to you, “It’s better to start small with them rather than to take a big bite. … The best answer is, ‘We’re honored and humbled.’” Don’t turn the big account away, but start on something small to see how the relationship works. You’ll learn how to work together, what your value is, and who your advocate will be when you pursue a longer-term contract with the account, he said.

Remember Who You Are

That’s a rule out of “Pricing With Confidence,” the book Burton wrote with Reed Holden.

Burton elaborated: “Customers come to you because they see value in what you do. So your focus has to be on the customer’s perception of value rather than your own internal perception of it. Your job in all cases is to manage that value upward so you get fairly paid.”

If times are tough and customers are demanding a discount, he advised that you walk away and walk to your bank. Put your own money into the business rather than cut prices.

Burton said to start that precedent early. As you grow the business and new people come on board, “it’s a very powerful cultural element.” As people learn that the owners are willing to put their own skin in the game “in order to get the right prices,” it sends a message.

“As you grow and hire employees,” he said, “you want to model for them that you’re willing to put it on the line to get paid fairly” for your brand’s or product’s or service’s value.

This article was published by The Small Business Authority on www.thesba.com.