top of page

Why discount offers don’t work?

“20% Off, this month only!”

“3 for the price of 2…”

“Buy now, get a free XXX (a $50 Value!)”

Offers like these work in the stores we all visit every day and they have become the mantra of big businesses like Groupon. So if it works for them then why wouldn’t it work for us in our world of B2B technology selling. It just doesn’t and I explain why below. Worse still, in the B2B technology marketplace, such offers are more likely to de-value your product offering.

So what’s the problem? Well to see the problem it is best to look at the two main areas where such offers are successful. These are B2C Luxury Items and B2B and B2C consumables.

1. B2C Luxury Items.

We all desire luxury items of one sort or another. For some of us it is the next iPhone or iPad. For others it is a Mercedes car, a pair of Jimmy Choo shoes or maybe a special fly-fishing reel or a skiing vacation in South America!

As consumers we buy these things with our discretionary spending money i.e. the cash left over after we pay for food, clothes, heat, lighting and rent, etc. Whatever it is, we feel that we will be happier and more fulfilled human beings if we can obtain ownership of this thing. We may even borrow to buy it and make the payments from our discretionary income. The important thing is that we don’t need it but we really want it. Our desire for luxury items that are out of our financial reach means that we often obsess about them and so we are very alert to any chance to short-circuit the route to obtaining them. Discount offers appeal to our desire to find just such a short-circuit and we often pounce on them as the saviours of our desires. If the offer seems really good then customers will often borrow to fill any remaining gap, a behaviour that probably accounts for a substantial share of the profits generated by credit card repayments.

2. B2B and B2C consumables.

Here the clever marketer is appealing to another basic human instinct, our desire to provide safety and security in our environment. In the B2C relationship the appeal is often to the nesting desire of parents who like to have plenty of food in the cupboard for their families. So getting twenty eggs for the price of twelve or being offered a free bag of tortilla chips with a jar of Mexican salsa dip really appeals. In the B2B scenario, the appeal is still to security. The purchaser responsible for the consumables needed to keep a manufacturing plant running knows that he is under pressure to cut costs and also to help cash flow. Both of these pressures tend to motivate the purchase of “just enough” of anything needed at any time. However, the same purchaser knows that if they run out of a consumable then part or all of the manufacturing process may be halted costing his employer cash and often resulting in some very unpleasant words being directed at the same purchasing officer. So production managers and purchasers alike secretly like to hold lots of inventory and the “buy some, get some more free” offer appeals to them.

But (and this is a very big BUT) these offers just don’t work for most research laboratory capital items and other high-value B2B technology sales. The “why not” is very simple. Firstly, these B2B sales are not luxury items as described above. They are items justified in strict terms of value to the end-user i.e. reducing costs, speeding up processes, etc. The purchaser isn’t trying to obtain them with some spare discretionary cash they personally control. Instead, they have to obtain funding from their company managers or, in the case of university researchers, from external funding agencies. Either way they will have to justify that there is a cost-benefit rationale behind the purchase and personal desire to have luxury items won’t help that discussion…. Secondly, these items aren’t consumables. If we are selling a 100K machine to do a task then offering 50% extra free isn’t a meaningful argument. Some have argued that you could appeal to this sense by offering an enhancement of the machine for a limited time at no extra cost. Usually this runs something along the lines of “buy the all new office document printing system in the next 30 days and get a free automated page sorter/binder add-on” but it doesn’t work. For high-value capital items either the user needs the add-on (in which case they would have purchased it anyway and you have just given away a fantastic opportunity to upsell) or they don’t (in which case the offer won’t help them to convince the higher-ups holding the purse strings to release the cash now).

Here is where our old friend the law of unintended consequences rears his very ugly head. The buyers of high-value capital items are savvy folk and they figure that if you could include the add-on for free then you are probably still willing to do it months later, after the offer has officially expired i.e. if and when they do get funding. If they don’t need or want the add-on item then when they are ready to purchase they will just use the offer to negotiate a discount. In such cases the conversation usually runs like this:

Buyer: “Hi John, I eventually got funding to buy that machine you have been trying to sell to me for months now”

Salesperson: “That’s great Mike, I’ll expect your order for $22K in the coming days then?”

Buyer: “Not quite there yet John. We don’t need the special offer add-on. So can we have it for 19K without out the add-on.”

Salesperson: “But Mike, that offer ended last month.”

Buyer: “I know but clearly you have the margin and I really tried to get the funding last month and the management team here all figure you have plenty of margin to spare. So they are pressuring me to get a good deal from you.”

You can see where this conversation is going. If the buyer want the add-on then you can

edit the above to end with the buyer proclaiming his expectation that if the seller could offer the add-on for free last month then he can do the same this month.

The net effect is that such offers rarely result in the expected increase in short-term sales that the promoters expected. However, they do have two very painful unintended consequences:

1. Often short-term dollar sales drop as purchasers who would have purchased at the higher buy at the lower price or they spend what they planned to spend anyway but get expensive extras from you for free. Either way, the consequence to profits is even more severe. Our well-intended offer may end up killing some or all of our profits for the period of the deal, yuk!

2. Longer-term the consequence is to devalue the product and create a pro-longed period of time where your salesforce is feeling huge pressure to offer discounts or include “free” add-ons to close sales. Yuk, again!

So if discounts don’t work for high value capital products then what does. Well like so many things in life the answer is simple but not easy. Yes, it is back to basics. Build great products. and then convey their value to customers through great marketing and with a well trained and supported sales force.

Here at Red Box Direct we can help with some of that. Do feel free to give us a call.

Rory Geoghegan

January 7th, 2023

Photo credits:

Why not take two minutes to watch the video on how Red Box Direct can help you expand into new markets.

11 views0 comments


bottom of page