Last week, we published an article about how to best incentivize your salespeople: one of the points was to design the incentive structure so that poor discounting habits were discouraged. However, the discounting habit will prevail if an efficient incentive structure is not accompanied by a change of mentality in the salespeople.
When a salesperson enters a negotiation, his sole objective is to convince the customer that she should buy your product rather than the range of seemingly similar alternatives offered by your competitors. Often, this will take the form of a reverse auction where 3 or 4 firms are competing to get the business.
It is a misconception that such auction is won by the lowest bidder. It’s won by the one who can offer the greatest value at the lowest price. Those two statements are far from the same! The first statement implies that you must be the one willing to set the lowest price, to win the bid. That is far from reality, and it is unwise to engage in such behaviour. Your margins will be razor-thin, and no - you will not make up for it in the next deal. It is problematic and symptomatic of a wrong, destructive mentality.
Get Rid of Your Price Obsession
Salespeople with poor discounting habits are those that enter a customer meeting thinking that they are going to sell the price of the product. They sit down with the customer and enter price negotiations straight away. They don’t sell your product or the value it offers the customer, and from the customer’s viewpoint, the product is similar to those offered by competitors. The sole differentiator is now price, and so, the lowest bidder will win: or perhaps lose, would be the more appropriate term.
Price obsession has many sources, but it typically originates in the training that salespeople receive and the information they get and don’t get. It’s very common to see ill-equipped salespeople with no clue about the product they’re selling. These types of salespeople are negotiators commoditizing the product, depreciating its value, and pouring profits down the drain.
Start Selling Value: And Only Value!
Rather than using sales meeting to offer your product at the lowest price, use them to demonstrate how your product meets their needs and offers value that is unrivalled by any competitor. In that way, you differentiate your product in a way that doesn’t cost you anything other than the time spent on preparing the sales pitch, and is much more efficient - after all, your competitors will likely try to differentiate themselves on price, too.
This is the mentality you want in sales people: pitch value, not prices, and make sure that your customer knows about all the benefits they get from your product.
Watch Out for Gimmicks!
Sometimes you need to discount. Especially when selling to large corporations, granting discounts is inevitable - that’s just the rules of the game. And so, salespeople need to be prepared to negotiate efficiently and watch out for gimmicks. Large corporations have well-trained procurement professionals, and these guys know how to exploit the discounting behaviour that almost all salespeople have embedded within them.
This is a classic. Large, multinational companies know how much it would mean to a salesperson if he could bag them as a client, and so, they start making false promises to get insanely high discounts: “We’ll start with a small “sample-order” and then we’ll follow up with a much bigger one, once we see you can deliver.” It’s going to be some variation of this sentence, and you shouldn’t fall for it! Even if it were true, a company that is genuinely interested in using you as a supplier would not care about any additional discount on a “sample-order”: all they care about is the price they pay for that big order they’re promising you.
Don’t let some promise of future purchases sway you away from your discounting guidelines.
Due to poor designs of incentive structures, many salespeople tend to be more lenient with their discounting by the end of a sales period. They want to meet sales targets, and so, they offer economically unwise discounts to close the deals. Procurement professionals know this and if you let them, they will start playing timing games with you where they only buy at the end of the quarter. Stand firm, and don’t condone this type of behaviour: in that way, you maintain profitability and keep the sales process smooth.
Many companies will pit you against your competitors: that’s where the misconception of discounting being industry standard comes from. You are discounting because all your competitors are, and your competitors are doing it because you are. This is very beneficial to the customer as they get the upper-hand, and therefore, they will do everything within their power to create this illusion of discounting being an industry standard.
It creates a “loser-takes-it-all” culture where only the one willing to make the greatest sacrifice will get business, and it is certainly not in your interest, nor your competitors’. Therefore, if you feel like you are not your customer’s preferred choice, walk away from the table. You are just there to pressure competitors to lower their prices, and you are not going to win unless you are willing to go where your competitors aren’t.