Discounts and other concessions

PRICE NEGOTIATIONS can be costly and should always be undertaken with caution. Each price concession nibbles away at margins until the item is no longer sold at a profit. And while I accept that sometimes it is necessary to consider a client’s request for discount, negotiation should never be entered into until every effort has been made to sell the item at the original price. As long as the client recognizes the value of the product (and the product is not grossly overpriced compared with similar products in the market), he will usually be willing to pay the asking price.

Of course, this won’t stop a client from asking for a discount. However, providing the salesperson politely but firmly declines to reduce the price, he won’t lose the sale unless an identical product is offered by another vendor at a lower price. Salespeople seem to resist discussing prices, preferring to wriggle out of stating a dollar or peso figure by sending a formal written proposal. As a result, clients view the figures in proposals and quotes as an opening price. Unless fees or charges are clearly labeled as “nonnegotiable” or tied to certain conditions (e.g., valid for 30 days only), clients will expect to negotiate the price.

Clients have limited opportunities to engage in price negotiations unless they have something to offer the vendor in return for a price concession. The buyer who walks into a store to buy bar of soap must pay the set price. Of course, he has the option to take his trade elsewhere (so he does have his “business” to trade). But that is all (and the cost of doing so will rarely realize any significant savings)! It is a different matter altogether if, having asked for the price of a single bar of soap, he discloses he wants to place volume order of 50 dozen pieces. He now has leverage because he has volume to trade.

Let’s talk currencies for a second. A currency is anything that the seller or the buyer has (either real, tangible, or intangible) that has some intrinsic value to the other party and may be exchanged. In commercial transactions, the major currency held by the buyer is, of course, money. And the seller has goods or services to exchange. However, considering only these two currencies restricts the opportunities to negotiate. Many currencies can and should come into play. Delivery, payment and credit terms, order volume, service contracts, etc., may all be amended, altered, offered, or removed from the deal in order to match the initial asking price or the granting of a discount.

Frequently, the process of commercial negotiation kicks off with one party asking for a discount and the other party agreeing or refusing to give it. In truth, this is not real negotiation. It is bargaining or haggling and is an unsatisfactory procedure because it rarely results in a win-win situation. The vendor who has to drop his price invariably loses without concessions or balancing counteroffers being made by the other party. Negotiation allows all parties to walk away with satisfactory outcome that meets all the needs of all of the parties.

To some extent, it is understandable that the average salesperson fails to equate price concessions with company profitability. Any sale, no matter how small the margin, is better than no sale at all, is a common tenet. Yet it is also clear that the salesperson who makes such a comment conveniently overlooks the high cost of realizing sales, company overheads, and salaries. Before using this as a basis for discounting, the salesperson should have a clear idea of cost, overheads, and cost of sale to accurately determine the profit margin.

A client will usually base his expectations on objective data, fair market price, value, and other economic factors. He will also consider any past relationship or rates he may have enjoyed in the past. It is perhaps worth considering the possibilities that exist when a client expresses the opinion that the product is grossly overpriced. This may be a simple (and usually ineffective) ploy to encourage the seller to reduce his cost. It might also be because the product is genuinely overpriced. However, in most cases, this type of comment is made because the buyer fails to see the real value of the product. This shows that the salesperson has not done enough to “sell” the product.

Hesitation or reticence in dealing with price issues sends a message to the client that the salesperson is uncomfortable with the amount and probably feels the item is overpriced. Conversely, a confident verbal delivery of price with no apparent or outward willingness to reduce it will go a long way to securing the sale without costly losses.

Price concessions should never be offered unless there is a specific request. And, unless there is a degree of flexibility in pricing, a salesperson should, when delivering proposals or sales presentations, have the confidence to present his prices as nonnegotiable. The economy today makes everyone cost-conscious. Demands for discounts and price concessions are more common than ever. But this alone doesn’t mean the salesperson needs to cave in and give the client everything he asks for. A sensible approach to selling, discounting, and negotiation will go a long way to minimize financial losses to companies while still keeping and satisfying customers.

Terence A. Hockenhull is a long term resident of the Philippines. He is an accomplished sales consultant and currently holds an executive sales position with an Italian geotechnical company.

hockenhull@gmail.com