Most B2B discount policies are upside-down, right-siding them can substantially grow your business
By Jim Logan • Jun 19th, 2007 • Category: News
A common business practice is to offer new customers a discount on their first purchase. The thought is the discount encourages a prospective customer both to buy and make a large initial purchase.
It often works. But at what cost?
Some companies just toss discounts around randomly as a tactic to close a sale. Customers learn the best deals are always waiting at the end of the quarter and business year.
Discounts, special offers, and promotional pricing are all valid sales tactics. I’ve used them all and have closed sales as a result of each. What I learned in the process is most B2B companies sabotage their revenue potential with inappropriate discount strategies - the results of which are unnecessary discounting, reduced margins, and lost revenue.
New customer discounts aren’t the only problem – volume discounts are an irritant too – but they’re the greatest area of discount abuse. The greatest missed opportunity are discounts applied to existing customers.
I’m convinced most B2B discount structures are upside-down and right-siding them can substantially grow your business. That’s your opportunity. It’s one of the topics I’m covering in next week’s teleconference on building greater and more frequent repeat business.
What do you think about new customer discounts and discounts in general? Do you agree with most businesses that new customers can and should be attracted with discounts?
I definitely do NOT think that discounts should be given to entice people to buy.
Better to have a pricing model that adequately reflects the value of the service. If anything, pricing should be set higher to account for negotiations. Of course, this is only applicable in the business world and then for retail only cars, houses and art come to mind…
If there’s no given policy on when a discount will be offered, then consumers can’t predict if/when one will occur. Plus, it sets a better perception of fair-market value for a given product and word of mouth can be more effective. Pricing is pricing.
Of course, if that’s all be said up front, and then during negotiations a need for an incentive arises, that’s still an option.
In fact, repeat customers would be the ones I’d target for discounts: upgrade to this account or extend your contract for X amount of time, and get this discount.
This seems much more effective for increasing client loyalty–and in business, it’s all about repeat customers.
Or??
Hi James!
Thanks for sharing your thoughts.
I think most companies would be better served offering bonuses to new customers and discounts (rewards) to existing customers.