This week, our post looks at four reasons value management reduces discounts and improves your sales margins. Keep reading to understand more about how value management reduces discounts.
“Value management” is a logical, multidisciplinary approach that helps you discover the real costs of a service or product and to understand the real benefits it can deliver to customers. With value selling you can show off and increase the value of your offering. Check out our earlier blog on why you should apply value management if you missed it: 5 REASONS TO IMPLEMENT VALUE MANAGEMENT – The Value Search Team.
So, why does value management reduce sales discounts?
As a customer, who doesn’t want to get the best deal and pay the best price?
There are lots of reasons that make us want to ask for a sales discount – we can’t stretch to the budget, we had a better quote elsewhere, or maybe we can’t fully grasp the value. And, as a vendor there are equally lots of reasons to give sales discounts: ranging from product differentiation to placement against competitors. But what about your business’ sales margins and your price protection? Sales discounts are fairly commonplace in industries where products are very similar. But they can also be very risky for software companies and telcos. If your products are perceived as similar to competitors, it is easiest for your sales reps to offer a discount. This, however, lacks imagination and is a one-way street! Make your salespeople stress the value and benefits to protect your sales margins and increase upsell cross-sell openings!
Here are some ways that using a value management approach can ensure price protection and reduce the discounts that you give out.
1. Talk value to move away from price
The first point we will cover today is this: The best way for you to move away from talking about prices and discounts with your customers is to focus on value. And the way to focus on value is with value management.
Customarily, sales discussions focused on brand exclusivity, in the sectors where it applied. And they focused on sales discounts, in the sectors where copying products is easy. So, for software and telecom vendors, where product differentiation is often minimal, and copying features is a matter of time and money rather than intellectual property rights, these discounts are often huge. The worst bit is that most often it is the salespeople who promote the discounts because sales discount are a “no brainer”: supposedly the ‘easiest way’ to close the deal.
In some companies, discounts are up to 80 percent off the list price. And sales discounts like this really do risk a company’s survival, especially in the dog-eat-dog digital world of today. A big problem here is that you are setting a price point from which you will NEVER move away again. It can also get really messy when product differentiation is so small, and some customers will always be better at bartering than others.
But what about customers who think your offering is only worth ‘what they are willing to pay for it’? Well, actually, if you lower your prices, your customers will probably also think that you are worth less than you are – and that the first price point was not realistic or real. So, you will lower your value. This pattern creates even more problems down the line when it comes to upsell cross-sell openings. These sales discounts can become endless. And discounts can also create the impression that the salesperson was trying to “cheat” the customer with the offer, or possibly has been cheating them with their previous offers.
How can you break out of this cycle?
The only way to move away from having price conversations with your customers, is to illustrate the value that your solution delivers. Obviously, price has to come into conversation somewhere, but it is so much better to bring this up a bit later on.
To move away from discussing price early on in the relationship, here are some questions to think about:
- Is your customer short of cash and can your solution help them with that?
- Will your solution increase sales margins? By how much?
- Will it reduce costs? By how much?
- Will your solution help your customer to differentiate in their market or become more competitive?
Value management reduces discounts because it changes the focus of your sales conversations. You can show your customers the return they will get for their investment, using KPIs to back up your claims. If you show them a good return on investment, why wouldn’t they pay more?
2. Sing from the same song sheet with a value management culture
A properly implemented value management culture can also help you to reduce the sales discounts you give out, as it will increase how your company is perceived. Your reputation could depend on this!
What happens if you are telling your customers that your solution can deliver $x millions but when asked how, your sales rep just has a blank look on their face? Well, you won’t seem very confident in your solution, that’s for sure!
When you’re applying value management you need support from analysts, and you also need help from presales professionals. You all need to sing from the same song sheet! It’s pretty obvious that value management is a journey that you cannot take alone. A properly implemented value management culture, will enable anyone in your sales team to show your customers all the whys and how’s in terms of the value you can bring. (Read more about how to implement a value management culture in our earlier post 6 steps to build a value management culture – The Value Search Team)
Value management reduces discounts when the whole team is onboard
What is not so obvious is that value management reduces discounts, especially when you fully implement the practice into your company culture. If your sales team can show your customers the value of your product, the need to haggle you down on your price reduces massively. When the value you bring is clearly understood by all of your team, and your sales reps are confident in value selling, they can readily share this knowledge with your prospects. And they won’t trip and fall into any discount black holes. With value selling, the price you charge for your solution can stay just where you want it. Your price tag, if truth be told, also reflects your knowledge and experience. So, the more professional your value management culture is, the more your customers will be prepared to pay for your products and services.
3. Back up your value conversations with reliable numbers
These days, especially for software vendors and telcos with small product differentiation, having a traditional bells and whistles sales conversation with your customers often goes nowhere fast. And it certainly doesn’t give you much price protection. Of course, it is still important to talk about some bells and whistles, but it’s best to focus on the whole picture. This picture is so much easier to build with a value management approach, as it provides you with the golden carrots. Numbers that equal money!
When you are value selling, your conversations will always be based on credible calculations and comparisons, which are backed by your product capabilities. You can present the benefits you will bring to your customers by using reliable numbers. The key here is knowing your stuff. Talking about value is great, but you need to back your sales discussions with the right benchmarks and calculations too. If you throw a number at a customer and you cannot back it up with credible benchmarks, the apparent value will be zero.
Without the numbers to back up your offering, you will only look unprofessional, and your customers will wonder if, even with the best solution in the world, you will be able to deliver them what you are promising. Value management reduces discounts because when you can really show your customers the monetary value that they can gain from your offering they will be happy to pay more for it.
4. Build trust and credibility to beat your competition
Applying value management helps you to build trust with customers, which helps secure your prices. Our final point is that value selling reduces discounts because it increases the trust that customers have in you. Trust and credibility really are key in competitive settings. Let’s think about this: if, for instance, a company was prepared to accept less for a solution you were purchasing, it might make you wonder if their solution is as good as you first thought. Would you trust a company if they appeared to have it all but discounted on their offering all too easily? Unlikely.
So, what does it mean for you?
Well, if your best and final offer is really high compared to your competition’s solution, which costs a lot less, would your customers go with them or you? Would they choose an option which is not as good if they really trusted you? Or would they find the extra budget to pay for your solution if they trust you and your solution a lot more? Would they fear making a mistake if they don’t go with you? We have to provide arguments for the purchaser – if your solution is so much more expensive that your competitors, you need to give your customers the reasons why. This comes down to good KPIs!
When you are value selling, your customers will not only buy into the value you estimated but also the trust and credibility you built through the process.
These three things can help you build trust:
- When you can show how your solution will deliver value with sales KPIs.
- When you are able to attach an amount, in money, to the value your solution delivers (in dollars or any other currency).
- And when you can easily adjust any calculations on the fly, as your customer changes some of the figures or wants to know what happens in the worst-case scenario.
Prepared with this information, your customers will think you and your company are experienced, professional, and trustworthy. You send the message that you work hard to solve any issues you find if, or when, things don’t go as expected. You will always be more dependable when you have the right tools to quickly correct any situations that move away from the original business case. And this is what will put you in front of your competition.
You are not selling a set of features, but a company culture
The thing to remember is that your product is not only a set of features, but also your company culture. So, when your team can build trust and credibility you will positively differentiate your product. This will also help you to reduce future discount conversations, when it’s time for renewals or upsell cross-sell opportunities arise. If you already gave massive sales discounts, your customers would expect the good will to continue – no matter how much they gained from your product. But with value selling you can shift the focus to value and benefits which will build credibility and trust. This approach really will help you to stay ahead of your competition and ensure price protection.
A value management route will offer you so many ways to ensure that the focus of your conversations is not on your costs. The bottom line is that your customers are very likely to ask for discounts and will always be expecting to get the best deal they can. But discounting gets complicated and can cause so many problems for vendors. In 2021 you need to be showcasing your value. And to do this you need a great team of people, trained in value selling and working in a value management culture. When your people can all justify the price of your offering with reliable numbers that your customers understand your customers will pay more, so you will protect your sales margins and ultimately your profit.
To sum up
Value management reduces discounts while helping you to ensure customer satisfaction. With credible KPIs and a business case your prospects trust, you can make it clear the return on investment will be worth the initial price. As a result, they will feel cheeky asking for sales discounts; now, or later on when it comes to upsell cross-sell windows.
It really comes down to just two choices. You can focus on value selling and protect your sales margins, or you can lower your price.