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Channel Coach: Discounting Is a Fatal Attraction

I’m all for selling as much product as possible as quickly as possible. However, we do have a responsibility to ourselves, our customers and our stakeholders to sell our products and services at a profit. Without meeting this responsibility, we will be out of business faster than we can imagine.

Why this fatal attraction with selling on price anyway? Last fall I wrote a highly read PHONE+ blog about the “Death Spiral of Selling on Price.” What is the point in selling a lot of products or services only to find that you will make little or no profit from the transaction? This isn’t a success strategy; it’s a “going out of business” strategy.

I learned the basics of business from my first job as a newspaper carrier. Seven days a week I delivered newspapers, rain or shine. The price for the newspapers was fixed and I received a profit of only a few cents per paper. But I earned a guaranteed profit; the more papers I sold, the more money I made. Now it would have been great to sell more papers each week, but since I already had more than 100 customers, I didn’t have time to prospect for more.

Home delivery of newspapers had a fixed price each week and while I could have discounted or even given the paper away for free if I wanted, every one of my customers paid full list price. I collected for the newspapers on Friday and needed enough money to pay my provider by the end of the week. After the bill was paid, the rest was my profit. If I discounted the newspaper even a penny, my profits would have been impacted. Since I was out every day rain or shine, what was my incentive to work hard and make little or no money? Also, I needed to pay for my bike, which I used to deliver the newspapers. For me, discounting or selling on price was not an option.

Since I didn’t have the extra time to prospect for more customers, I had to come up with another strategy to make more money from my existing customers. The answer I developed was to add value. But how? Delivering the newspapers in the location the customer wanted and making sure papers arrived dry on rainy and snowy days was the value for my customers. But there was a value add for me too in the form of referrals to new prospects and in the higher tips received for great service. I learned to profit from the value add of great service, not lower prices.

To me those lessons still ring true today. So you will understand my frustration with those in the telecom world who are overwhelmingly — and fatally I might add — attracted to selling on price. As I stated in my blog last fall, this sales strategy is truly a “death spiral” for a business.

Here’s the problem with a pure price sales strategy. It sure seems easier to go in to the prospect and deliver the lowest price proposal. No reason to work hard asking about their business, no needs analysis and no requirement to present your capabilities or even prepare a value proposition. Just stop by and drop off the price. (Worse yet, some vendors just e-mail or fax their price). The customer looks at you and smiles, you smile back and everyone is happy.

But, even the average telecom prospect today is smart and well conditioned with many years of price shopping experience gained from dealing with former service providers. You probably know them — or perhaps not, since often they are the ones being replaced because they are out of business. The prospect says to you, “Let me think about it and I’ll get back to you.” What do you suppose they will do next? That’s right, call your competitors and tell them your price and ask them to beat it. Then they call you and tell you to beat your competitor. Before you know it, you are slugging it out with competition based solely on price. The last one standing is the winner — or perhaps not. The last one standing may actually be the loser and may wind up as another service provider that went out of business.

My advice is if you really want to be around for a while to enjoy the fruits of your labor STOP DISCOUNTING and STOP SELLING ON PRICE! Change the way you do business to assure a fair profit for your efforts and challenge yourself to build value into every proposal you prepare. Don’t get into price battles. Stop, turn around and let your competition lose money on that deal.

In the long run you will have more satisfied customers, your business will have real value, and you will make more money. Now that is what I call a real value add.

Got Questions?

Ask the Channel Coach. Send your questions to wbtaylor@corporateladders.com. Please include your name, city, state and a phone number where you can be reached. First names and locations only will be published.

Bill Taylor is president of Corporate Ladders, a management, sales and business development consulting and coaching firm specializing in technology, telecom, Internet, health care and financial services companies. He can be reached at +1 201 825 8296 or wbtaylor@corporateladders.com.


Avoiding the Death Spiral

  • Determine pricing that is fair and results in a profit — then stick with it.
  • Avoid discounting — don’t get into bidding wars.
  • Add value — what is better about your offering?
  • Provide service beyond expectations — this is priceless!

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