Earlier this week, I shared a blog post called, “The Impact of Price Discounting on Gross Margin from a Business Acumen Perspective.” In it, we shared insights and ideas about how cutting prices can impact the business from the business acumen perspective, most notably gross margin and profit metrics.
As a compliment to that blog, I want to share today's insights and ideas on how cutting prices can impact the business from a business leadership perspective. Here, business leadership is defined as the process of executing strategy through people.
From a business leadership perspective, the impact of price discounting extends beyond the previously mentioned immediate financial metrics like gross margin to encompass broader strategic issues such as organizational culture and long-term customer relationships.
Here are some key aspects of the impact of price discounting from a business leadership perspective:
Culture, Morale, and Engagement - Price discounting initiatives can impact culture, morale, and motivation, particularly if employees perceive discounts as devaluing the products or services they represent. Inevitably there will be those negative leaders who say. “Commercial can’t do their jobs so they are giving it away,” which causes unnecessary conflict and misalignment. If cutting prices is a consideration, then leaders should engage employees in discussions about pricing strategies, emphasizing the rationale behind discounting decisions and soliciting their input on alternative approaches.
Diminishing of a Culture of Innovation - An over-reliance on price discounting may undermine efforts to innovate and differentiate products or services based on quality, features, and customer experience. Many companies are striving to create a culture of innovation and having less cash flow to innovate can be devastating to a business. If cutting prices is a consideration, leaders should do everything possible to double down on the creation of a culture of innovation and embrace the challenges of doing more with less. Many times, this stress can drive breakthrough ideas.
Strategic Decision-Making - Leaders play a pivotal role in determining when and how to implement price discounting strategies. They must weigh the short-term benefits of increased sales volume against the potential long-term consequences for brand perception, profitability, market positioning, and employee morale. The more people that are included in the decisions, the more stakeholder acceptance you will have.
Long-Term Sustainability - Leaders should adopt a long-term perspective when evaluating the impact of price discounting on the organization's sustainability and resilience. They should consider how discounting strategies may affect the company's ability to invest in future growth initiatives, attract top talent, and adapt to changing market conditions.
Brand Equity and the Brand of People - Price discounting can have implications for how a company is perceived by customers in the marketplace. Leaders must consider how discounting strategies may impact the brand of the people. The brand of the people may be diminished and the ability to differentiate on value may be diminished as well. When cutting prices, it is important to recognize there may be a skills and brand of people gap where the customer expectation is for continued high-quality products and services but the affordable talent level to deliver is much less than expectations.
Customer Relationships - Price discounting can influence customer perceptions of value and loyalty. Leaders should assess how discounting initiatives may affect customer relationships and the lifetime value of the customer. Many organizations are only as good as the strength of their key customer relationships so leaders considering price discounting must communicate transparently with customers about pricing decisions and ensure that discounts are applied strategically to reward loyalty and incentivize desired behaviors.
Thanks for reading these two posts! In conclusion, effective leadership requires careful consideration of the complex impact of price discounting on people, strategic, financial, and organizational dimensions.
Open and honest communication with all stakeholders is crucial. By fostering transparency, alignment, and a customer-centric mindset, leaders can navigate the complexities of price discounting while preserving value, fostering innovation, and maintaining a strong organizational culture.
