As you approach the end of the quarter, you’ll often start to see a lot of discounts coming in from the sales team as reps scramble to meet their quotas at the last minute. If you’ve taken the time to properly develop and implement your pricing strategy, this discounting undercuts your prices, and could undermine an entire pricing initiative — even your entire brand.
A significant amount of time and effort goes into researching and developing your products and services, so sales reps should focus on selling value and business solutions to a customer, rather than selling on the discount. Excessive discounting and high variability in pricing hurts your sales organization’s price credibility.
Once customers know they could save money by holding out for a steep discount, they won’t pay full price. Relying on discounting devalues the benefits of products, hurts the company and devalues the brand.
To control discounting, you need to have discount discipline and the right guidelines in place. Reps need clear guidance on what price to quote, the approval process for any discounts and when to walk away from a deal.
Here are five ways to improve your discount discipline:
1) Identify your price variability: Pricing software is a good way to assess the variability between your list price and net price. From there, take a closer look at where your team is applying discounts and formulate a discount pricing strategy. In some cases, discounts are useful tools that support an organization’s strategic objectives, for example. But you want to avoid widespread discounting that’s not clearly aligned with such an objective.
When you see variance in your pricing, you have the opportunity to segment your customers into peer groups. This visibility helps you compare customer performance to capture incremental revenue and move customers from lower segments into a higher-paying segment.
2) Streamline the approval process: Your quote approval process plays a significant role in discount discipline and protecting profit margins. For example, it’s important to have discount approval at the right level in the organization. When a front-line sales rep has total discounting approval, that’s generally when you see the greatest variability between list price and net price. But if you make the approval process too difficult, such as requiring high-level review and approval for every discount, this process uses too many resources, and slows quote turnaround time.
3) Integrate pricing guidance and workflows: Clear pricing guidance and processes help reps know when a deal is bad business. When the rep knows your pre-approved floor price, target and stretch price, they’re able to quote effectively and know when to walk away. This pricing guidance could be included in an integrated workflow, using a Configure, Price, Quote (CPQ) solution.
4) Retrain your sales organization to sell on value: If you find your sales force is over-discounting, find out why they’re going down that road. If they’re selling the wrong product or wrong offer, they may be discounting in order to get the customer to buy an item they don’t really need.
Train your sales organization to find out what challenges the customer is facing and then match up the appropriate products with those business needs. This understanding helps you offer the right products and sell based on the value you’re providing, not the price. Done well, the customer may not even think of holding out for a lower price.
5) Make sure your compensation plan supports discount discipline: Think about what kinds of behaviors you’re encouraging through your compensation plan. If you’re compensating sales reps too heavily based on volume more than on revenue, it could encourage the kind of over-discounting that ultimately hurts the organization.
A lack of discount discipline is a real problem for many organizations. But with the right planning and pricing software, you’re able to redefine your strategy and implement workflows that support discipline. By adjusting your training procedures and compensation plan, you further ensure that sales reps focus on driving profitability and higher margins.