Product Managers And The Problem With Discounting

by drjim on June 23, 2014

If you aren't careful, discounting can quickly get out of hand…

If you aren’t careful, discounting can quickly get out of hand…

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Every product manager out there would like more people to buy their product. Hmm, now just exactly how to go about making that happen? Sure, we need to provide our potential customers with the products that they want, but once we’ve done that, what else can we do to convince them to buy? It turns out that we have a powerful weapon called discounting that can be made to be a part of every product development definition, but if we’re not careful it can easily cause things to get out of control…

The Problem With Selling Pickup Trucks

If we are going to talk about how product manager can use discounts, then it might be helpful to have an example to take a look at. The world of new cars, or more specifically new pickup trucks, is a great place to take a look at discounts. In the U.S., General Motors (GM) makes a pickup truck line called the Silverado and Ford makes a pickup truck line called the F-Series.

GM has just introduced their new line of Silverado pickups (Ford will introduce their new line later in the year). GM’s product managers have decided to back off from its historical use of very large discounts and is currently offering no discounts. If they can do this correctly, then they may have something that they can add to their product manager resume.

The GM dealers are, understandably, not happy about this. Rival Ford is currently offering discounts of up to US$9,000 on F-Series pickups. As painful as the no discounting policy is, GM is currently earning $34,672 each time they sell a truck while Ford is making $33,986 per truck.

How To Sell A Truck Without Discounts

Clearly, selling a product without having to resort to discounts results in a larger bottom line for the company. However, if your customers have been conditioned to look for big discounts, it may be much harder to get them to make the decision to buy your product. The discounts that are being offered by Ford may make GM’s no discounts policy hard to maintain.

In order to help its dealers adjust to the no discount policy, GM has taken the unprecedented move to send trainers out to meet with the dealers. These trainers are showing the dealer’s salespeople how to sell a pickup truck with no discount. The trainers are telling the dealer to spend more time with customers talking about features such as how quiet they are and the truck’s fuel economy.

GM has said that they “…don’t have to put their trucks on sale to sell it…” However, they are trying to change the way that their customers have been taught to buy their product. Only time will tell if GM’s product managers can maintain their no discount strategy or if they’ll have to revert to their old ways in order to better compete with Ford.

What All Of This Means For You

A part of every product manager’s product manager job description is to find ways to make their product a success. One of the tools that we have at our disposal to make this happen is the discount. However, we need to be careful because things can get out of control quickly.

GM has decided to stop discounting their pickup trucks. However, Ford is heavily discounting their pickup trucks. This has resulted in GM having to send trainers out to their dealers in order to show them how to sell their pickup trucks with little or no discounts. This strategy appears to be working for now, but it may not work in the future.

As product managers we need to understand that discounting our products is a tool that can be used occasionally. We don’t want to allow our potential customers to become addicted to this form of pricing. Use it when you want to motivate potential customers but understand that its effectiveness may depend on what your competition is doing.

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: Do you think that you should let your competition’s marketing tactics drive your discounting strategy?

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What We’ll Be Talking About Next Time

Ok product manager, let’s talk about something different for just a moment. As product managers we are all trying to do the same thing: identify a segment of customers who are underserved, use our product development definition to create a product for them, and then provide them with a solution that meets their needs while making money for our company. How hard could all of that be? It turns out that it’s actually pretty hard to do well. Chris Barrett has found a novel way to do this for a segment of customers who are currently in prison and he’s got a few things to teach the rest of us…

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