Many companies are tempted to win new prospects and grow market share through what they consider “strategic discounting.” There are a lot of rationalizations for this, and it usually involves a belief that we will be able to increase the price over time once we win the business and prove our value. “Strategic discounting to grow share” is a nice way of saying we’re going to buy the business, and it’s a very destructive practice.
Buying business at less than you are worth is like taking a job for a salary less than you are worth. You tell yourself, “I’ll work hard, prove to my new boss how hard I hustle, what a fast learner I am, what a team player I am, how valuable I am, and I’ll get raises. Soon enough, I’ll be paid what I’m truly worth.” (“We’ll get price increases and soon enough, we’ll be paid fairly for our products and services. Buying this business at a discount is a strategic, short-term move.”)
First of all, getting those price increases from customers is actually harder in practice than we tempt ourselves into believing ahead of time. We train them that we’re worth less, and it’s a lot of work to extract higher pricing later. Secondly, even when we get them to pay us more over time for the terrific products and services we sell, we likely could have gotten price increases even if we had higher pricing out of the gate. We sacrifice a lifetime of profit:
In the salary analogy, it’s like piling annual raises on a lower original salary or piling annual raises on a higher original salary. There’s a compounding effect. We are working for less than we are worth year after year. This is a demoralizing, miserable, soul-sucking experience. Don’t work for less than you are worth for your customers. Don’t buy business.
Easy to say and hard to do, right? Well, yes. And no. Not always. Sometimes a prospect’s price objection isn’t a price objection at all. And the answer to a prospect’s price objection isn’t always a discount. Learn more here.