Why Discounting Rocks!


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“Tom finally brought in the MegaCorp deal. He’s set for the quarter!” “—Yeah, but . . . he . . . (mumble)—discounted.”

To many business developers, discounting creates ugly stains on otherwise bright outcomes. Did Tom discount because he was a talentless clod who couldn’t sell his way out of a paper bag—or because he chose to seize an opportunity to best his competition through a deft, well-timed pricing maneuver? You make the call.

Mention discount in a sales meeting, and people might look at you like you just traipsed into the room toting a sack of anthrax. Never Discount Your Prices. Salespeople Who Give Discounts are Not Salespeople. Discover Why You Must Never, Ever Discount. Wow. How do you really feel?

Managers moan that salespeople overuse discounting. They believe the tactic is emblematic of weakness. That it’s a knee-jerk reaction for those who lack selling skills. Agreed. Salespeople become discount junkies because it often works for capturing orders. A profit-eroding sugar high. A vicious cycle, that frequently ends with “we had to let that salesperson go. It’s just not how we want to do business.”

Emotions aside, discounting is just a thing—one of many levers that businesses can adjust in response to pressure from evolving risks and opportunities. But other levers, like process innovation and cost-cutting, can also create havoc when used indiscriminately. Oddly, they don’t suffer from the same taint as discounting. I searched online, and could not find one article titled Why You Must Never, Ever Cut Costs.

Discounts—and their cousins, price adjustments and rebates—are essential strategic and tactical weapons. Discounts help vendors

1. exert time pressure. Limited-time offers. Expiration dates. When there’s an incongruity between buyer and seller motivation, discounting can help close the gap.

2. get pending orders off the street. Vendors have huge risks when almost-orders hang, and hang, and hang, and hang. Stuff happens. Show me an executive with a non-negotiable, blanket prohibition on situational price adjustments, and I’ll show you an idiot.

3. rapidly adjust to changing market dynamics. Sometimes, you just can’t stick with legacy pricing. Look at the decline of once-great companies—Sony, Blockbuster, Sun Microsystems, Sears, Motorola—and you’ll find ossified price models in the rubble pile.

4. gain key customers in new markets. Ever heard “We’d like to buy, but we’re concerned we’ll be the first in our industry to use your product.”? Discounting can compensate customers for increased risk.

5. create perceptions of high value. One software company I worked for always presented pricing for small-to-medium businesses as discounted from the large-system list price. While the discounts varied, prospects anchored on the list price which the company charged its largest clients for the same product.

6. quickly pass savings to customers. In a recent Wall Street Journal article, Chevy Cuts Volt Sticker Price, Don Johnson, GM’s US Vice President for Chevrolet sales and service said, “we have made great strides in reducing costs as we gain experience with electric vehicles and their components. We want to pass those cost savings back to consumers.”

And most important of all,

7. keep competitors off balance. Nate Silver points out in his book, The Signal and the Noise, that when competitors aren’t sure how you will play your hand, you have a powerful advantage. He used poker as an example, but the same holds for sales. Denying yourself the discount option means your competition has one less thing to worry about. “Cut their price? Nah—won’t happen.”

Pricing discounts represent a cost of risk—a response to the overarching risk that a prospect might not buy from you. Of course, like any cost, executives must consider how to manage it. Want to reduce discounting? That worthy goal requires making trade-offs. You’ll likely need to define market targets with greater clarity and precision, increase pipeline multipliers, hire better educated, more talented salespeople, improve coaching and training, pay higher salaries and commissions, and provide staff with better business intelligence. Nothing’s free. But done right, you’ll experience an improvement in profitability.

When timed properly and used with the right intent, discounting rocks. Sure, nobody should get hooked on it. But stomp it out? Ban it? Remove it from your arsenal and throw it in the crusher? Not on a bet!

Republished with author's permission from original post.


  1. Good post.

    One of the main reason for discounting is that the salesmen do a good job climbing the mountain of getting the deal. The problem is the others side of the mountain and that is where discounts take place. By this I mean they can’t show how much a customer will make. If they can show this with numbers that customers agree with then there would be no reason to discount. The problem is that lot of salesmen are not comfortable with doing this type of analysis.

  2. Well, yes – and no. I guess my reaction is that your list is entirely tactical.

    Nothing wrong with that per se, but I do think it loses something in the absence of a strategic perspective. So let me be constructive and offer one.

    Part of a pricing strategy is to offer a coherent statement of your value proposition, and of your approach to pricing with customers. For example, I value these statements to my clientele:
    Relative to competitors, I’m high value and high price
    I never want someone to think they paid more for the same thing than another client
    When i charge different rates, there’ll be a good reason why, and I’ll tell it to you. In my business, those reasons are:
    1. volume discounting
    2. new market entry
    3. client industry profitabilty (including SMB, associations, and non-profits)
    4. massively easier service delivery.

    That tells my clients something about who I am and what I stand for. It ALSO gives them confidence that when I quote them a price, I’m not taking advantage of temporary price situations in the market, trying to buy the business from a competitor only to raise their price later (and use my client as a means to my competitive advantage rather than as an end in themselves), and any other form of deception that they might not like.

    From that perspective, I can embrace your reasons 3, 4 5 and 6.

    By contrast, I would not subscribe to your reasons 1, 2 and 7.

    I’m not saying I’m right or wrong, just offering a bigger picture perspective for your consideration.

  3. Andy, a thoughtful and provocative article, thanks.

    I’d like to add another dimension, a bit more strategic. It may not help in some businesses, though I think it does in mine (consulting/training/speaking).

    My sense is that your seven reasons all have to do with the particular sale at hand. In my business, I’m finding it useful to think of pricing more from the relationship perspective, across multiple transactions over time. In that sense, pricing sends a message, one that I can craft and manage.

    So for example, I have tried to say things like “I’ll never be uncomfortable explaining to you why I quoted you such-and-such a price.” That means, if I do it right, I’ll never have a client complain that someone else got a better deal from me than they did – because I can explain it.

    It means I have to have a small and clear set of explanations. In my case, they are a. volume discounts, b. new industries of great interest to me, c. extreme cases of geographic convenience (like, a half-hour drive and no plane rides and wearing blue jeans), and d. financial situation of industry (e.g. associations, SME, and non-profits). All else, full rate.

    When I apply my philosophy to your list of ways in which discounts help sellers, I find I am in agreement with numbers 3, 4, 5 and 6. They reinforce my way of thinking for my markets. But i find myself in disagreement with your numbers 1, 2 and 7.

    For example, your number 7, “keep competitors off balance,” means you’re focusing on your relationship to your competitor, and the customer is simply a vehicle or means to an end, a bystander if you will. In my business, that is not a message I want to send.

    I want to be clear, I’m not making any claim at all that my rules are better than yours. In my experience, industry explains a lot. There are valid reasons why each of us might be completely right in our particular situations. But it’s always useful to explore them too.

    Again, thanks for a thoughtful and provocative blogpost.

  4. Andy, thanks for a provocative post. Pricing is the “elephant in the room” when it comes to closing deals and building loyalty.

    Too often the party line seems to be: discounting = admission of failure by the sales rep.

    The reality is there are many valid reasons to discount, as noted by Charles. Discounting for bigger/longer deals, entering a new market, etc. are “explainable” to existing customers, so they don’t undermine the core pricing structure.

    The reason that is rarely talked about, but perhaps is the most valuable, is that that discounts are perceived as value by some customers. (Noted by Andy in his item 5.)

    Try to find a mainstream retailer that doesn’t offer deals. JC Penney tried to get its customers to kick the habit, and failed. (See my blog post here.)

    In B2B, I think the same dynamic applies, although you probably won’t get purchasing people to admit it. Let’s say you’re selling enterprise software, and you’ve got a potential $100K deal. Which is more likely to close?
    A. $100K with no discount
    B. $100K discounted 33% (from $150K “list” price)

    Option B will be perceived as a “better” deal due to effect of anchoring. The list price serves as the anchor, and biases the customer towards deals that are more deeply discounted. I think this is true regardless of the company size. Big companies tend to feel entitled to big discounts, even when making a small (for them) purchase.

    I’m not saying this is right or fair. I personally feel a bit like former JCP CEO Ron Johnson, who thought the constant deals that retailers push was dishonest. Mark it up just to mark it down doesn’t seem right, but many consumers seem to prefer this to a “fair and square” deal. He lost his job in part because he didn’t appreciate how important discounting was to his “bargainista” customers, who were happy to get their deals from Macy’s, Kohl’s, etc.

    In B2B, I think discounting should be used very carefully and strategically. Otherwise, customers will be trained to wait until the end of the quarter to get the best deal. Oh, wait, they already are.

  5. Thanks Jay, Charles, and Bob for taking the time to comment. Charles – I agree with your comment “Part of a pricing strategy is to offer a coherent statement of your value proposition”, coherent being the operative word. One of the reasons that seat-of-the-pants discounting ticks people off so much. But you’ve also shared that in your business, discounting provides you the latitude to sell your services to organizations that otherwise might not be able to afford them. To me, that helps everyone.

    Philosophically and ethically, I do not have any issue offering discounts for #1, 2, and 7. In many industries, sellers use time pressure strategically to manage many high-level issues: cash flow challenges, product obsolescence, reducing excess inventory from finished goods, termination of royalty payments, changes in market price, etc. Customers experience the same forces, and sellers should not be reticent to exercise the option. Again, there’s potential for both parties to gain.

    To be clear, the intent of keeping competitors off balance (#7) shouldn’t connote a ‘focus’ on competitors, but a recognition that in most purchasing situations, competitive pricing exerts a force on the buying decision. The power to mitigate or offset that force should not be overlooked or ignored.

    As Bob pointed out, discounting doesn’t fit every situation. In some situations, customers are comfortable with discounting, and expect it. When used with planning and discretion, it can be a highly effective pricing tool.


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