Published by Niall Devitt, Btb Business Training

Let me start this post by saying I sometimes get accused by my clients of being anti-discount. While I wouldn’t agree with that assertion, I would like to highlight that in my experience, I have seen discounts being used very badly many more times than I have seen discounts being used very well. While I absolutely agree that discounts can be a very effective tool in driving business, I would advise extreme caution. The following is an example of what can go wrong.

I recently did some work for a company that had gotten itself into something of a mess, all because it had relied heavily on discounting to secure new customers in the early days.

This was particularly frustrating for them to take as they now felt that they had a value proposition that was superior to any of their competitors. While promising not to go into names etc, I asked their MD if I could broadly outline some of the mistakes they made in the early days so as to warn other start-up businesses about the potential problems that can be caused by discounting. So fair play and big thanks must go to him for agreeing to let me use their story to highlight the dangers of discounting.

The First Year

Their initial (short-term) strategy was to offer their products at a very competitive pricing structure to help their sales team quickly develop a big customer base. Nothing too wrong with that, you might say but here’s the Achilles heel .The sales team were also encouraged to offer additional (generous) discounts to secure individual customers. As a strategy for building up the customer base, this was extremely effective and the company increased its customer count by a massive amount inside the first twelve months.

However there were two other important results that were not recorded on their end of year one sales figures but were never the less very real.

Result one, like it or not they had now set (sold) the perceived value in the minds of their customers. This perceived customer valuation now also became the customer’s expectation. In other words they had failed to convince their customers of the real value and in doing so had set the precedent for all future dealings. ouch!

The second thing that happened is that their sales team had become accustomed to selling discounts not value. They had in effect completely stopped selling the benefits of the products and were now only selling based on price. ouch!

Years Two and Three

While the short term had looked rosy, consolidating any future growth was now starting to prove impossible. Discounting was now also starting to have a direct effect on all other aspects of the business. While turnover might have looked healthy, profits did not reflect well. There was little or no money left to invest in maintaining customer service and supports which quickly led to disgruntled customers who now expected even more discounts as a result. A sales team who already weak at selling value now felt they had no choice but to offer further discounts just to ward off the competition. ouch! ouch! ouch!

Year Four

Noticing this vicious circle, The MD finally grasped the nettle by the hand, now realising that for the business to survive they needed to sell their products at their real value and put in place the correct supports and backups. Knowing that this was going to cost money and customers, he now had the unenviable task of trying to convince an already unhappy group of investors to invest even more money in a rapidly failing company. OUCH!

To his great credit and fantastic powers of persuasion, he succeeded and in the next post I will try to highlight the unfortunate legacy that still even ten years later remains and also the problems that had to be overcome in the meantime.

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