What’s the best way of offering discounts via your sales team?
One of the many complex problems facing companies today is the surrendering of value, leaving pounds/dollars on the table. As a consultant (and also in previous lives as a marketing director), one of the big issues I was asked to advise/contribute on was that of pricing structures and discount regimes.
As we have said before on A Brand Day Out, discounts must only be given when they relate to a condition of sale, for example:
- Order in 14 days
- Order by 31st January and receive 10% off
- Buy one, get one free (BOGOF)
- Save 20% if you buy Product x and Product y together
- Buy any three named products and receive the cheapest free.
In an approach based on conditional response, you do two things: encourage sales of products and preserve the pricing position of the product under normal stand-alone conditions.
However, a difficulty arises when sales teams are out in the field. In this hairy face-to-face sales environment, even the best sales people can bottle it. Discounts are given for fear of losing a sale. Extra product is thrown in. Often sales people will try to draw your eye to the value of what has been sold rather than the immediate and long term profit of the sale. But this can be misleading.
But if you have a dog that keeps digging up your lawn, whose fault is it? Yours or the dog’s? If the lawn owner is the one getting angry with the dog, then the owner is at fault. The dog, after all, can be trained and the lawn owner is happy. If the lawn owner doesn’t care, then the dog is at fault. The dog is on the scent and it cannot stop itself from digging the lawn. So it is with the sales team.
The problem is that sales people (quite rightly) are driven by the scent of commission rather than maintaining a profitable relationship between the company and the customer – opting instead for what might appear to be a profitable relationship between themselves and the customer. A sales person, naturally, will want the biggest deal to create the biggest commission. But the company wants the best long term profit and minimal profit erosion through the price waterfall. So how best to deliver benefits for the company while keeping a loyal sales team?
In preserving the “lawn” of your profits, it pays to know and communicate the following to your sales team:
- The deliverable component features of each product (i.e. features which can be added or removed in bargaining)
- What each of your product does for the end user
- Why each of these products is better than competitor products
- Where competitor products are better (yes better) than yours
- A logical individual price structure of each product which relates to the competitive environment (e.g. if a product is weaker than a competitor’s, a customer WILL expect to pay less for is)
- A price matrix, compiled with assistance of the finance team, which reflects accurate unit profitability based on numbers sold
- A price matrix for each product which logically presents a price reduction system based on volume purchase (and which can be used on your internal computer systems)
- A multiple price matrix which enables complex multiple purchases from different elements of the product mix
With a pricing system rigorously enforced around a robust matrix, and with a sales team trained in intimate knowledge of product/key account component delivery, sales can be delivered which will be profitable for the business and for the sales person. The key is that the pricing structure itself relates to an acceptable price/value transaction relationship. If this component, too, is in place, then long term relationships are assured, sales teams are rewarded and the company survives longer.
And with the money you save, you can treat the dog to a new sand pit.