How to Avoid Price Discounting and Other Sales Errors

Everyone makes mistakes. They’re even easier to make when the quarter is coming to a close and you realize you might not make your numbers. You institute a quick fix to reduce sales expenses or to close a few last minute deals and voila! You’ve made your numbers – but you’ve also made a deadly error that could cost your company its future.

In their book,
Chaotics: The Business of Managing and Marketing in the Age of Turbulence, Philip Kotler and John Caslione discuss some common strategic errors companies make when trying to preserve cash flow or boost revenues. Here’s a look at the three that relate to sales:

Price Discounting. Pricing can be "management’s worst nightmare when the economy goes south and sales begin to slide," say Kotler and Caslione. Your reps will be more tempted than ever to discount as every sale becomes a challenge. But discounting brings its own set of problems. Buyers who are more concerned with wringing every penny out of a seller than with the value they are getting will flee as soon as another vendor comes along with a lower price.

Moreover, it hits profits hard. At a 10 percent discount, a typical firm would need to sell 50 percent more units to keep the same profit on the bottom line. Instead of discounting, figure out a way to add value to your product or service. "This ‘value added’ proposition means you can ‘give away’ something that won’t come out of your profits," say the authors. "Done right, it can also add to the customer experience of both the transaction and your company."

Relationship Erosion. Of your total pool of potential customers, how many are in the market for your product or service at any given time? If you’re like most organizations, the answer is around 2 percent to 4 percent – which means that 96 percent to 98 percent of prospective buyers aren’t ready to make a purchase today but they will be in the future.

When companies are looking to cut costs, one area they mistakenly cut is in the building of long-term relationships with prospects who could become important customers down the road. "When times are tight, it is natural to cater to the here and now transactional customers who are ready to buy today" acknowledge Kotler and Caslione. Too often, however, this is done at the expense of investing in the relational customer who is looking for the trusted brand or expertise and will come back regardless of price – but who might not be ready to buy today. Sacrificing those long-term relationships is a recipe for long-term disaster.

Training Cuts. When management takes a pair of scissors to the budget, one of the first things to go is training. "Training and development are perceived as expendable costs," say the authors. "But cutting back on this key growth aspect could also cut your share of an already shrinking market. Can you really afford to lose market share?"

The problem is that training is often viewed solely as a cost. A national training evaluation initiative in Australia points to the fallacy of that view. In the study, training evaluation case studies were carried out on Australian companies ranging in size from 400 to 27,000 employees. The conclusion: there was a positive ROI in all cases with improvements ranging from 30 percent (fuel efficiency training) to 1,277 percent (safety training). "Companies that don’t understand the value of training and development will ultimately lose stakeholder value," say Kotler and Caslione. "They may also lose their talent to competitors who are willing to invest in training and development."

Bad decisions happen every day. But the repercussions of such decisions can have a spiraling result that affects the long-term health of the company. "Management that resorts to financial engineering rather than working on the core fundamentals," warn Kotler and Caslione, "will compound the precarious footing that chaos creates." <!–

For more information, visit www.kotlermarketing.com or www.caslione.com. –>