The Consequences of a Discount

I was at a recent meeting where the state of the local economy was being discussed. Things were looking up, customers were coming in the door, demand was high due to local development and population increases. The conversation switched to profitability and how to manage price in an expanding market. Some were of the opinion that aggressive pricing would ensure maximum market share, others thought it was time to ‘make hay’ while the sun shines. In this blog we look at the question from two points of view, the customer and the supplier.

From the Customers Perspective

When looking from the customer’s perspective, it is unwise to pay too much, but it is worse to pay too little. When you pay too much you loose a little money – that’s all. When you pay too little, you can loose much more. When making a purchase, customers want the item to perform the job required, FULL STOP. If it doesn’t do the job, if the delivery was late or there is limited or no back up service, they will quickly forget how much they saved.

The common law of business balance prohibits paying a little and getting a lot – it cannot be done. If customers deal with the lowest bidder, it is well they put something in for the risk they run. If they do that, they may well have enough to pay for something better in the first place. We are doing them a disservice when we fail to point this out.

From Your Perspective

Discounting is often the first reaction to a difficult sales situation. In previous Coaches Plays I have discussed how selling is really just problem solving (see coaches playbook #1). By offering a discount, we may be assuming that price is the number 1 customer concern when often it is isn’t.

However, have you ever stopped to consider what impact a discount has on our bottom line?  Consider that if we drop the price by 10%, we need to sell double the number of units to make the same profit. Makes you think doesn’t it!

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