Deep discounts have cut into profitability – but now the customers expect them.
“In an economy like this, carriers are being forced to do things they might not want to do,” says Mike Sorensen, district sales manager with ABS, a nationwide LDL carrier. “That translates into deep discounts, even sometimes to small customers, and this has really hurt our profitability. In my sixteen years in this position, I’ve never seen the industry offer such ridiculous pricing to such a wide range of customers.”Solution:
“When companies and salespeople realize they’ve been giving away too much, they need to rectify this over time,” says Beverly Flaxington, cofounder of The Collaborative (the- collaborative.com) and author of
Understanding Other People: The Five Secrets to Human Behavior
(ATA Press, 2009). Rather than just announce that the price is going up – news that is rarely welcome, no matter how generous the discounts have been – she suggests you remind smaller clients that they’ve been getting a bargain for a long time. Furthermore, with larger customers, a pricing reevaluation can be an opportunity to shift the relationship emphasis from pure pricing to overall service.
“The first step is to send out a new standard pricing schedule to show smaller clients just how far below the market they’ve been paying,” says Flaxington. “This information is provided, along with letters saying that pricing is going to be adjusted for those accounts. The salesperson should then contact the clients and remind them of the value they’re receiving and the discounted rate at which they’ve been getting it. You should also then inform the customers of the new rate and the date it will go into effect. For larger clients, if the value is there, you might want to leave the discounts in effect. Continue to check in and ensure that the clients know you care so that the relationships aren’t built just on the value the client is getting, but also on the service and caretaking that go along with it.”
If that solution sounds too harsh for your situation, you might opt to create a system whereby smaller clients can earn their discounts, perhaps for prepayment, maintenance contracts, and referrals. After all, clients’ value isn’t measured merely by how much business they give you, but it’s also a function of how much or how little it costs to maintain the relationship. A small client who pays promptly, requires little service, or is a consistent source of referrals may deserve the same level of discounts as a larger one.
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