But The Price Is Too High - headline from a 1927 article on sales.

Sales Discounting and Negotiations – A Lesson from Sales History

Apr 3, 2024 | Blog

Sales Discounting and Negotiations – A Lesson from Sales History

Are there bad habits in selling we’ll just never fix? Many of problems with “sales” that we see discussed every day on LinkedIn, on webinars, at events, and in books are exactly the same as they were over a hundred years ago. We know the things we shouldn’t be doing – yet, pockets of the sales world continue to do them. Spam-cannon outreach. Scale over substance. Miss-set quotas. Unfair compensation plans. Leading through fear. Bending the truth or plain old outright lying to customers. Free discounts. 

Each expert commentary preaches why we shouldn’t use these old-school, ineffective, trust eroding approaches. The overwhelming majority of those commenting are in full agreement. Yet, pockets of the sales community will continue to do them.

Why don’t those issues go away?   

Let’s explore sales discounting…it’s history, commentary, and why we haven’t been able to break this terrible habit.

Sales Negotiations – A Brief History

From the beginning of the modern sales organization in the 1880s, manufacturers who built things at scale needed their sales organization to take those things to market. The best organizations established their pricing based on what the market would bear while still establishing the proper levels of profitability, and adjust on the whole based on market fluctuations. 

However, it didn’t take long for salespeople to start believing that they knew better, and based on pressure from their prospects and customers, would bend to those demands for lower, or what was often called “inside” prices. Salespeople would feel the pressure, then argue back to the home office the need to lower prices, which, at its core, told the home office that the salesperson wasn’t very good at their job.

From as early as 1904, articles discussing this phenomenon blamed the salespeople.

**I believe the salespeople are more often the symptom than the problem, which I’ll diagnose and prescribe later**

For example, an article from a 1904 edition of Mahin’s Magazine explained, “A salesman does not make permanent friends by yielding to demands for inside prices. It is a sign of weakness and weakness excites pity rather than admiration.”

W.N. Aubuchon, in a 1905 edition of Salesmanship Magazine, when on further to say, “Inferiority is a makeshift with no future. Once buyers learn that a salesman will yield to pressure and lower a price, that salesman will be caused to lead a miserable existence thereafter, and will get no orders without a struggle.”

F.W. Farnsworth went even further in September 1905.

“Nearly every one concedes that price-cutting is an evil that must be avoided by himself and discountenanced in his neighbors, and yet price-cutting goes on in all localities, discrediting the trade-mark which the manufacturer has worked so long to build up and strengthen, and creating an insatiable appetite with the consumer, which grows with what it feeds upon.

“It seems a small thing for the seller to cut the price of some standard line of goods in order that he may take an order away from ‘that man Jones, who seems to be getting all the trade’, but when he does this, ‘that man Jones’ fights fire with fire and cuts the price on his line. Profits are destroyed and the men are drunk with a fierce desire of taking orders at any cost, and lose all sight of the consequences.

“The worst part about price-cutting is this, that, once started, it is hard to stop. It is like an avalanche which starts far up the mountain side with a mere handful of stone and gravel, and, plunging downward in its mad career, sweeps away houses, farms and even whole villages.”

He goes on to say, “Price-cutting is a sign of weakness. It is practically an admission that the article is not worth the full price charged for it, and to be sold at all it must be brought down to a figure within reason.”

“It would be far better for the trade in general if the manufacturer, jobber and retailer would arrive at a mutual understanding at which price certain articles should sell.”

Comic from 1906 called "The Small End of the Horn"

“Many are the schemes of the shrewd buyer to trap the salesman and make him come out at the small end of the horn. Don’t give in. Don’t lose your nerve. Hang on. Stick tight. Hold fast to the legitimate selling price.” – Salesmanship Magazine, 1906

We see the problem today as much as 120 years ago. Of all the programs I teach, my Transparent Negotiations program is the most popular. Why? Because every for-profit company in the world aims to improve deal profitability through a reduction in discounting. Every for-profit company desires to maximize the value of each transaction, while also driving customers to sign faster, pay faster, and commit longer.

What I teach typically makes a big impact quickly, but there are three issues that also must be addressed to ensure it sticks and spreads:

Issue #1: Habit

Even when something is good for us, we tend to fall back on what’s engrained. In a September of 1905 article, Harvard University Profession William James said something that really hit the point home…

“’Habit a second nature! Habit is ten times nature,’ the Duke of Willington is said to have exclaimed. Men grown old in prison have asked to be readmitted after being once set free. In a railroad accident a menagerie-tiger, who’s cage had broken open, is said to have emerged, but presently crept back again, as if too much bewildered by his new responsibilities, so that he was without difficulty secured.”

In the 1990’s, I sold for one of the largest software companies in the world, SAP. At the time, the deals were massive…entire deal sizes (software plus services) were in the 8-9 figure range. Yet, for most of those deals, the discount percentages off “list price” were 70%+. A deal I was involved in for $24M in software plus over $70M in services in 1999 was discounted 74%. Why? Because the price wasn’t established to be what the customer would pay…it was merely a starting point. Margins were incredibly high, so the price would eventually come down to what each customer was able to pay. It worked. It wasn’t good for anyone in the long term, but it worked.

Some argue any revenue is better than no revenue. Others say landing and expanding via discounting is a good thing. And yet others preach how buying market share establishes dominance and credibility to win the space. It’s worked before. In those instances, habit means excuses…like the “I can quit” tomorrow addict.

Issue #2: Macro Prioritization

Throughout history, the macro-economy drove pricing prioritization. Multiple times since the 1910s, the economy has shifted to one of “steady growth”, then to “revenue at all costs”. Eventually the bubble leaks or bursts, leading everyone to “survival mode”. Once the dust settles, we all say “revenue at all costs is dead” while we focus on “profitable growth”, then back again through the entire cycle. 

Depending on the cycle and investment prioritization, adherence to pricing and discounting went up or down. During a period of “revenue at all costs”, buying deals was par for the course. I’m probably teaching a lot more negotiation programs right now because we’re in the “profitable growth” stage of the rollercoaster. We will cycle through this again…it’s just a matter of time. 

Issue #3: Compensation and Measures

While I wrote above how “even when something is good for us” we often don’t change due to habit – however, the bigger issue may be that stopping the discount evil is actually rewarded in most compensation plans and measures for salespeople and their leaders. So it’s not actually best for those with typically compensation and measurement plans to stop discounting.

In an article from System Magazine, November, 1916, they eloquently dissected this issue – an issue that is exactly the same today! It explained how variable compensation based on sales (aka “bookings”) “is unfair to the conscientious salesman who tries to hold prices up; it encourages the very situation you are exhorting your salesman to avoid.”

Again, this is from 1916! The traditional compensation plan is REWARDING and CELEBRATING the rep who discounts more at a lower margin versus the rep who discounts less at a high margin.

The article walked through the math – and I’ve updated the math here:

Rep A – ACV (Annual Contract Value) = $50,000 | 0% discount | $30,000 margin for the company
The deal? 100 seat license at no discount for $500 seat.
If the margin is $300 a seat, that profitability on that deal = $30,000.
Rep gets paid 10% commission, so $5,000

Rep B – ACV (Annual Contract Value) = $56,000 | 20% discount | $28,000 margin for the company
The deal? 140 seat license at 20% for $400 seat.
The margin is now $200 a seat, so the profit on the deal is $28,000.
Rep gets paid 10% commission, so $5,600

Rep A, the 0% discounter, makes the company more money – both short-term and long term, but receives less quota attainment and less commission.

Rep B, the 20% discounter, made the company less margin and reduced the upsell opportunity, yet makes a higher commission because the ACV is higher.

Rep B is also higher on the rankings, as is their manager, because the Annual Contract Value is what they’re judged by, and in this case, higher!

Today, we’ve completely ignored the experts like Nilas Oran Shively in his 1916 book, Salesmanship, who wrote, ‘The customer who buys an article where the price has been cut is not nearly so loyal, nor has he the confidence in the house, that the man who pays full price.” 

Not only have we ignored it, we’re feeding the problem. As I work with companies, I also find that they’re discounting structures make discounting easy. “A rep can discount up to 10% before they have to come to me (the manager) for approval.” Free 10%!

In the May 29th, 1926 edition of Sales Management Magazine, there was a quote that jumped off the page:

“Price cutting is like small-pox. It spreads quickly.” – Sales Management Magazine, 1926

At the time, they were referring to the cooling off of the economy, which eventually resulted in The Great Depression.

“The prospect of a moderate decline in business has, as usual, started some of the weaker concerns on a price-cutting rampage.”

While there were instances where across the board price reductions helped build up volume, serving as a leader into a land-and-expand pricing environment, the article pointed out, “don’t forget in this hour of increasing price resistance that price-cutting is peanut salesmanship. Like the small boy and the candy, giving them what they want is very sure to make them sick. So long as your prices are higher than your competitors’, your salesmen must talk and sell quality. When you start cutting prices salesmen unconsciously begin to sell on price, and say very little about quality. The lower you drop your price the less there is said about quality. First thing you know, your salesmen are not salesmen at all, but just order takers.”

This discounting epidemic (“like small-pox”) was gaining so much steam, that it was contributing to the demise of the economy. Some began to do everything they could to ward this off. 

In an article in June of 1926’s Sales Management Magazine, “From confidential sources word comes of a plan being used in three cities to curb the epidemic of price cutting which has been raging for some time.”

“Social Clubs” were created amongst companies to hold each other accountable to their prices. If they couldn’t sell at a certain price, the prices should be reduced for all…versus each customer paying a different amount based on how well each party negotiated the agreement. Each member put up a hefty “initiating fee”, a fee that would be forfeited if they were found to be giving one-off discounts to clients.

Big discounters were referred to as “scalpers”, and they were creating dramatic pricing wars that were taking everyone down in the regions and industries…including the scalpers themselves. These clubs walked a very thin line…as price-fixing legislation was prominent. Any hint that competitors were getting together to fix prices at a certain level could result in massive punishments.

Quote from Thomas Herbert Russell - 1912: The knowledge of buyers has increased, and they are no longer disposed to pay what is asked of them, unless persuaded in their minds that the sellers regulate their prices on some sound basis."

The Go-Forward

I believe it starts with this quote from Thomas Herbert Russell’s 1912 book Salesmanship:

“The knowledge of buyers has increased, and they are no longer disposed to pay what is asked of them, unless persuaded in their minds that the sellers regulate their prices on some sound basis.”

First, your price should be your price…now, later this month, quarter, and year. Establish the pricing expectation early in the conversation.

Your pricing, along with every for-profit company in the world, cares most about four things – and the best companies establish their pricing based on them…

  1. Volume (aka, buy more stuff) = good. (A customer who commits to a lot is better than a customer who commits to a little – and your pricing should reflect that)
  2. Timing of Cash (aka, pay faster) = good. (A customer who pays quickly – annual, up-front, NET30 is better than a customer who wants to pay monthly and or NET90 – and your pricing should reflect that)
  3. Length of Commitment (aka, commit longer) = good. (A customer who commits to a longer period of time is better than one who doesn’t want to commit at all – and multi-year incentives should reward that)
  4. Timing of the Deal (aka, predictability) = good. (A client who is willing to help you predict and forecast is better than one who doesn’t. Instead of fake expiring discounts, pay the customer to help you predict)

Those are the four things you should be paying for in the form of a discount. They’re the “Four Levers of Negotiations“.

It goes much deeper than this…as I mentioned, it’s the most popular program I teach, and it doesn’t have to be that hard. Confidence is contagious.

“The salesman who knowingly overcharges a customer is a commercial pickpocket. If you sell your goods for less than they are worth, you are not alive to your self-interest and self-respect and may even be weak in character and personality. Any order-taker type of salesman can sell a customer at the customer’s own price. Knowledge does away with fear of price-cutting and competition.” – The Art and Science of Salesmanship, 1918

Why Now?

My belief is that sales compensation programs need to come into alignment with the idea that, in today’s world, the deal is no longer the peak of the selling process…it’s merely an early milestone on the path to having a customer who stays, buys more, advocates, and takes you with them to their next company. That wasn’t always the case. The SAP deals I sold? They were perpetual (buy it + maintain it) versus today’s subscription approach. 

And…I believe AI is going to expose our pricing models soon, anyway. It will not be sustainable to have each of your clients paying a different amount based on how well the negotiation with that client went. 

This is solvable, but it must be supported by knowledge, structure, and measures. The time is now.

“Any man can sell goods by cutting prices, but it takes salesmanship to maintain prices and still get the business.” Arthur Wall Douglas, Traveling Salesmanship, 1919

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Negotiation training doesn’t have to be hard, complex, or brutal to make stick. I know…that’s crazy, but it’s the most popular program I teach for a reason. It’s what I do…I teach and speak to sellers, their leaders, well…entire revenue organizations how we as human beings make decisions, then how to use that knowledge for good (not evil) in their messaging (informal and formal), negotiations, and revenue leadership. I wrote a book Book Authority listed as the 6th best sales book of all time (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘤𝘺 𝘚𝘢𝘭𝘦), and a second award-winning book (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘵 𝘚𝘢𝘭𝘦𝘴 𝘓𝘦𝘢𝘥𝘦𝘳).

Reach out. Email info@toddcaponi.com or call 847-999-0420.

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