As usual, I’ve stuck my nose into some on-line discussions. This time, the discussion started on “creating value,” and devolved into a discussion of discounting.
Bob Apollo kicked off the discussion with the premise: Discounting is a sign of failure. It’s something I wholeheartedly agree with. Without meaning to repeat Bob’s post, discounting comes as a result of our inability to get the customer to understand the value that we provide and create. It comes from our inability to differentiate and defend that value in ways meaningful to the customer. It is the result of a failure of execution on our part.
But over the course of the discussion. I realized that people confuse pricing strategies and discounting. They are different!
And it’s important to understand that difference as part of our sales and value creation efforts.
We adopt different pricing strategies based on how we want to be positioned and perceived in the marketplace. Some choose a premium pricing strategy, some choose to be the low price supplier, and there are many other strategies we can create around our pricing.
Choosing the premium and low price strategies, as an example, doesn’t represent goodness or badness. For example, many sales people and customers mistakenly think, the premium priced solutions are better than the low priced solutions. This is just plain wrong!
We adopt different pricing strategies, based on how we want to be positioned and perceived in the market. These strategies shape our target or ideal customers, and the value propositions/value positioning we create.
This is, perhaps, most visible, in consumer products. There are very successful brands and retailers of premium priced products and brands. Cartier, Tiffany, Louis Vuitton, Chanel, Bang and Olufsen, Ferrari, Bentley, Nordstrom, Nieman Marcus are just a few that position themselves as premium products targeting certain customer sets/buying needs. They are very successful in those spaces.
Likewise, there are those brands and retailers that position themselves as low price, WalMart is, perhaps one of the more well known in the US. They are targeting different markets and different buyer needs.
The same buyers may buy from each channel, but for very different needs.
We see the same thing in complex B2B sales. Our pricing strategies, along with our value creation, value proposition and related strategies define our target markets, ideal customer profiles (ICP), and clarify our positioning–both for us and for our customers.
So our pricing strategies are critical to our overall go to market strategies and positioning. If we stray outside those markets and the things that customers value, we are not likely to be successful.
At the risk of repeating myself, we tend to apply value judgments to “high price” and “low price” strategies, thinking one is better than the other. In reality they are different and have differing goals/objectives. We tend, mistakenly to apply quality judgments associated with pricing, when that may be completely wrong. For example, I once owned a very high end sports car that spent significantly more time in the shop than my wife’s modest Subaru. But I bought that sports car for different purposes/reasons than my wife had for her Subaru–and we were both happy with our purchases.
We may, sometimes, integrate systemic discounting into our pricing strategies. For example, a product that is going to end of life and we need to get rid of inventory.
Discounting happens, in our deals, when we fail to prove and support our value with our target customers. Discounting happens with organizations that have a premium pricing strategy, it happens with organizations that have a low pricing strategy.
Discounting is a failure in sales execution. If we can’t defend our value, if we can’t align our value with those things that are important to the customer, we are forced to align ourselves with where the customer is at, in order to win the business.
We may have pursued the wrong customer and have been forced to discount. We may have (which I see most often), failed to understand what our customer values and positioned our offerings appropriately. Or we, too often, fail to create value in the buying process or fail to fulfill the customer experience the customer thought they were buyint.
Pricing and discounting are different. We need to understand this. We need to understand our pricing strategies and how it impact our ICP, our positioning, and our value creation/delivery.
We need to execute well with our customers do help them understand and “buy” the value we create.
If we fail, we discount! Which is simply bad selling.