Discounting could be killing your business! Yes, discounting may sound like a smart idea to get that sale over the line but many don't realise the serious problems it can cause - http://www.sales-i.com/whitepaper/discounting-killing-business.

1. An eBook by
WHY DISCOUNTING
IS KILLING YOUR
BUSINESS

2. Discounting as a pricing tactic is as old as the sales
profession itself. Your ever-demanding customers are
after a good deal and your salespeople are gagging for
a quick win. Offering specially-reduced prices can be
powerful, there’s no denying it. We’ve all seen the hordes
of people racing to supermarkets on Black Friday, elbows
firmly engaged and ready to holler at any unsuspecting
fellow shopper that might dare to reach for the same
toaster as them.
In reality though, discounting is killing your business, with
every cent you knock off your list price for a what will be a
very short-lived spike in sales.
The wholesale distribution industry is one rife with
competition, competition that will likely have the same
product or one very similar to yours on offer. In such a
bustling market, your customers are all powerful and they
can chip away at your bottom line with very little effort,
playing you against your competition in a never-ending
price war. So it’s not surprising that many wholesale
distributors think the way to see light at the end of the
tunnel is to cut prices to get a deal over the line.
Don’t wage a price war: why discounting is killing your business
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WHY MANUFACTURERS AND
DISTRIBUTORS DISCOUNT

3. Your boss? Your sales director? Your finance team? More
often than not, senior management will dictate pricing and
simply force this onto your sales team and subsequently
your buyers. However, without any understanding of the
pricing strategy you should be adopting, setting a price can
end up being nothing more than a shot in the dark for most
departments of your business.
Your sales director will likely look to set the price as high as
possible to generate the most revenue, the same goes for
your boss and your finance team.
A price too low and you’ll be throwing money away; Too high
and you’ll see a dip in sales volume. It’s a tricky game to get
right and should involve a team that know what constitutes
an acceptable price for your customers.
Don’t wage a price war: why discounting is killing your business
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Who dictates your pricing?
1
What value will your product or service
bring the buyer?
2 Are your customers price sensitive?
3
What are you doing differently to your
competition?
4
Is your customer willing to pay $XYZ for
your product?
Theory suggests that your marketing team should control
and dictate the pricing of your products. Let’s go back to
your high school Business class. Remember the 4Ps that
your teacher probably prattled on about for at least a
couple of lessons? These 4Ps of the marketing mix are what
the crayon-wielding, creative ninjas live by: product, place,
promotion and PRICE.
Your marketing team will always have an ear to the ground.
They know your customers inside out, your market like the
back of their hand and competitors like their closest friends.
A bit of market research here, some sneaky competitor
analysis there – your marketing team really are in the best
position to dictate your pricing.
This doesn’t mean that your management team or finance
gurus should be left out altogether, but marketing should
have the overarching ability to dictate the price of your
product or service depending upon seasons, trends or
competitor activity.
When coupled with a smart value positioning and some
really intriguing promotion, price can end up being one
factor of many, rather than THE deciding factor for your
customers when they’re in the market for your products.
Who should dictate your pricing? Things to establish before setting a price:
5
How much margin do you need to make
selling your product worthwhile?

4. WHY IS
DISCOUNTING
KILLING YOUR
BUSINESS?

5. 4www.sales-i.com
Discounting, no matter how marginal can, and will, kill your
business. A bold statement, we know. We’re all material
people. We like stuff. And we like to get said stuff at the best
possible value. But good value doesn’t always mean the
lowest cost.
But when your customer utters the words “how much is it?”,
your answer as a product salesperson can (sadly) dictate
the future of your deal. When followed swiftly by a sharp
intake of breath and “what can you do on the price?” many
salespeople will “see what they can do” and usually offer
some form of discount package, shaving dollars off your
margins.
It’s killing your business. Here’s why.
Don’t wage a price war: why discounting is killing your business
Discount to the detriment of long term profits
While great for short term sales spikes, discounting
will ultimately hit your long-term profits hard.
In discounting, you’re not fostering a long-term
relationship with your customers – you’re having a
fling with a ‘deal shopper’ who won’t ever call you
back. Plus why should the fly by customer pay less
than an existing customer who gives you repeat
business on a regular basis?
You’re commoditizing your business
In the wholesale distribution industry, intense
competition comes with the territory. But
undercutting competitors won’t do you any good.
Low value products can in turn lead to a low value
company with customers fixated on price with low
expectations and little to no engagement with
your brand. You’d never refer to your products as
mere ‘commodities’ so don’t start commoditizing
your business with discounts.
Raises uncomfortable questions
Say you cut prices by 20%. The question on your
customers’ lips won’t be “Where do I sign?”, instead
it’ll be “What was your mark-up beforehand?!”
It’s not a question any wholesale distributor ever
wants to be faced with, is it? If you’ve got the ability
to slash prices at a moment’s notice, customers
can become wary about how much profit you
were making before, making you unstrustworthy.
Customers will bide their time for lower prices
If you’ve discounted before, chances are you’ll
consider doing it again for that elusive spike in
your sales volume. Your customers are savvy
beings and will wait patiently for you to discount
again. Think of Black Friday, people bide their
time knowing that a discount is coming soon. Your
sales will tail off in periods when you’re not offering
discounts and only spike when you cut your prices.
Do you want to be a discount brand?
Lowering your prices essentially makes you one.
Discounting heavily can damage your brand and
sully everything you stand for as a company.
Most people value things based on price and
knockdown prices can give your customers the
idea that you’re becoming a discount brand.
If that’s not what you’re aiming to do, will your
customers be willing to step up and pay full price
when you’re not discounting?
More discount = less profit
Imagine your profit margin is 30%. If you’re offering
a 20% discount, your profit margin then becomes
10%. As the cost of raw materials continues to rise,
along with sharp increases in labor costs, can you
really afford to cut your prices? In short, you’ll have
to increase how much you sell to maintain the
same level of revenue. Meaning more production
costs, more time and a lot more effort.

6. 5
Sometimes it can seem like there’s no alternative but to
offer a discount to secure a sale. With the threat of your
competition ready to lure away your customers as soon as
you deny their request for a discount, how can businesses
today really say no?
Competing effectively means doing more than just offering
a cheaper deal. Have competitive prices by all means, but
there are things you can be doing to avoid the pitfalls of
discounting and make a difference with your customers.
Don’t wage a price war: why discounting is killing your business
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HOW TO AVOID
THE PITFALLS OF
DISCOUNTING
Increase your product range
A wide product range can encourage your
customers to spend more of their money with
you. If you’re selling, for example, nuts and bolts
to your customers, broadening your product range
to include washers, screws and tools can incite
your customers to spend more money with you. A
wider product range makes it easy for them to get
everything they need from you.
Think of the likes of Walmart and other traditional
grocery stores. They no longer sell just groceries;
you can pick up pens, clothes, TVs and even
garden furniture at most superstores today.
Sharpen up your positioning
Make sure you fully understand your buyers. What
are their challenges? What makes them tick?
What are their goals? Armed with this knowledge,
you can rejig your positioning and offer a product
they can’t live without.
Make your product a ‘must have’. Make it easy
for your customer to get pepped up and excited
about your offering. They’ll be so swept away in the
excitement that the price will be an afterthought.
Add value
This ties in nicely with the previous point. As a
wholesale distribution salesperson, you need to
understand exactlywhere your company’s offering
fits in with their day-to-day lives. How will it change
their lives? Will it save them time? Money? Effort?
Knowing precisely what your product can bring to
the table will make those hellish price negotiations
a thing of the past. Remember that a lower price
doesn’t always mean better value, in fact a higher
price is often attributed to superior quality.
Let your customers do the talking
Your existing customers are your biggest weapon
when closing a sale. Already advocates of your
brand, sharing case studies, testimonials, videos
and references from people already using your
product or service can be a game-changer when
you’re selling. Hearing how good your offering is
from other users is incredibly powerful.

7. EXAMPLE OF
DISCOUNTING
GONE WRONG

8. Franchisees of the fast-food giant McDonald’s claim that
they are being forced to offer too many discounts. Getting
customers through the door and making profitable sales are
two very different things. As private investors in McDonald’s
franchises, these individuals are reporting huge losses
compared with the same quarter of last year simply by
reducing their prices.
While this doesn’t directly impact customers, it’s clear to
see how discounting can negatively affect a company’s
bottom line. If companies the size of McDonald’s feel the
pain of discounting, what’s to sayyourwholesale distribution
company won’t feel the same?
Instead of discounting, look to McDonalds’ famous up-sell:
“Would you like fries with that?” This simple question must
have made the company billions over the years; is there a
similar question you could be asking?
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271
0.2%
0.8%
$15
Restaurants taken part in the
discounting scheme.
Growth slowed by 0.2% in the third
quarter.
They expect a 0.8% decline in sales in
the fourth quarter.
Labor costs on average $15 per hour
meaning discounting can be difficult.
Don’t wage a price war: why discounting is killing your business
MCDONALD’S

9. EXAMPLES OF
BRANDS THAT
DON’T DISCOUNT

10. 9www.sales-i.com
Don’t wage a price war: why discounting is killing your business
Technology giant Apple has never offered a discount. Yet
come iPhone 8 release day, you can guarantee people
around the world will be camping overnight to be first in
line to buy one at list price (or even more on eBay when
stock is low). Apple products have become a cult item that
customers are willing to pay for. From the experience in
store to aftercare and support, Apple doesn’t offer discounts
to its customers because they just don’t need to.
“It’s up to us to convince people to maybe spend a little
more for a materially better experience of product. And we
think that people will do that if the product is great and if it’s
messaged appropriately.”
- TIM COOK, CEO OF APPLE
Apple
Luxury fashion brand, Louis Vuitton will never offer a
discount. Having faced near bankruptcy in the early 1970s
due to private franchisees marking up prices on their luxury
handbags and luggage and pocketing the difference. After
a swift management shakeup, Louis Vuitton became a
vertically integrated company that today owns their entire
supply chain from factories to shop floors in department
stores. Customers can’t purchase Louis Vuitton products
anywhere but official outlets or authorized concessions –
making it impossible to discount.
“Controlling the channel meant you controlled the price.
Without a middleman, margins are higher, offering a
plumper profit cushion during downturns. This practice also
confers exclusivity, since you can buy a given product only
from an authorized dealer where price is fixed.”
- HENRY RECAMIER, 1977 OWNER OF LOUIS VUITTON
Louis Vuitton
Business magnate, founder of Tesla, Space X, SolarCity
and Paypal and all round nice guy, Elon Musk is one of the
greatest and most humble businessmen of our generation.
Musk recently penned a lengthy email to his Tesla team
about the very reasons why they never offer a discount on
their cars. It’s worth the read. We promise.
“The acid test is that if you can’t explain to a customer who
paid full price why another customer didn’t without being
embarrassed, then it is not right.”
- ELON MUSK, FOUNDER OF TESLA (...AND OTHERS)
Tesla

11. 10
STATISTICS
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Don’t wage a price war: why discounting is killing your business
67%
40%
1%
8%
Offering discounts means poor loyalty and loyal customers spend 67% more than new ones with
repeat purchases .
Source: www.inc.com
Promotions often have little impact on buyers – 40% would have bought an item anyway,
promotion or no promotion.
Source: www.inspectorinsight.com
A 1% pricing discount results in a decrease of 8% in operating profits for the average company.
Source: McKinsey & Company
If volumes remained stable, a price rise of 1% would an 8% increase in operating profits.
Source: McKinsey & Company

12. A pricing strategy is something that’s often decided without
much thought within many businesses. It’s not an easy task
to get right, but business owners often fail to anticipate how
quickly profit margins can disappear when they give away
a harmless concession here and there such as 10% off their
usual list price.
For a business with a 20% gross margin, a 10% discount gives
away 50% of their profits as raw materials and operational
costs remain the same. Is a 10% discount going to increase
sales by 50%? Probably not.
Don’t wage a price war: why discounting is killing your business
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How discounting eats into profits
Costs
80%
Costs
80%
Profit
80%
Discount 10%
Profit 10%

13. In short, discounting is bad. Adding value is good. Knowing
your customers inside out is key to providing an experience
that will keep your customers coming back for more and
negating the need to cut your prices just to get that elusive
“yes”.
Be more proactive inyoursales approach and pre-emptyour
customer’s next purchasing move. Using sales technology
can help you to be more proactive you’ll be able to avoid
those awkward discount conversations altogether. This kind
of software can help you to get ahead of your competition
before they even have a chance to undercut you and start
a price war. What’s more if you’re being more proactive
towards your customers, they’ll trust you more and in turn
become more loyal. If this is the case, even a low price won’t
be effective in securing their business.
Some of the most successful companies in history have
never once offered a discount and they’ve stayed true to
their morals. A quality product that will help improve or
better any aspect of your buyers’ lives shouldn’t need to be
discounted.
12
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TO SUMMARIZE

14. ABOUT
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Don’t wage a price war: why discounting is killing your business