The Revenue Opportunity in Managing Negotiated Discounts

This brief article summarizes the benefits of Discount Containment. A White Paper on this topic can be found by clicking here.

The Conflict

Technology vendors are facing reduced IT budgets. Furthermore, even prospects with fewer budget constraints are trying to take advantage of what they see as a buyer's market. The buyer's-market mentality has persuaded some sales reps that they can only make quota if they giveaway more product, drop prices and give deeper discounts.

While customers and the sales force press for lower prices or deeper discounts, investors are pressing for stable or growing revenues while maintaining profit margins -- as a demonstration of stability despite the tough times. For many companies like yours, action is necessary. Some of the action will likely involve stabilizing pricing and discounting.

Tactics and Pitfalls

If you are considering across-the-board, ad hoc price reductions, we have one word: DON'T.

These tactics are likely to aggravate the current situation. Price cuts undermine the value proposition, devalue the brand, and are, by definition, indiscriminate. Worse yet, they typically take 60 -180 days for their effect to be felt. But, most importantly, they can lead to a longer-term downward financial spiral that can be difficult, if not impossible, to reverse.

Controlling the outflow of discount dollars can provide a timely and highly effective means of dealing with the current economic climate. Separating out standard from negotiated discounts affords senior management an opportunity to focus: on individual products, on customer segments, and on individual customers. Information about discount dollar outflows:

• Equips sales teams to professionally handle customer pressure for discounts, and

• Plug the revenue leaks that naturally occur in the absence of information and expertise

Discount Containment is a strategy for holding the line on value, revenue and profits while improving customer satisfaction. And the results can be seen very quickly.

Within the sales force, Discount Containment identifies sources of discount dollar "leaks". If the problem is widespread, one can develop laser-focused negotiation guidelines -- by product line, customer segment, and deal size. Feedback mechanisms can be put in place to let individual sales reps know where they stand relative to their peers. If there are weak negotiators, they can be identified and given appropriate training.

Again, the net result is always lower discount levels and almost always increased revenues and profits.

Uncovering a New Source of Revenues and Margin

For nearly fifteen years MarketShare has advised high-technology companies almost exclusively on pricing and deal negotiation. Our extensive experience in Discount Containment has led to the development and deployment of proven strategies and methods to deal with customer and sales pressure to drop prices and raise discounts.

We enable our clients to determine quickly and precisely where discounts are going. We also work with them to develop effective controls and allocation schemes. In short, we introduce our clients to our distinct methodology that helps them and their sales forces use discounts more effectively -- in good times, and bad.

To learn more and to discuss your specific needs, contact MarketShare by e-mail or by telephone at 508-647-0330.