Is ‘free’ right for you?

Here are two words that customers love to hear: “free” and “discount.” But for a small business, those words can be dangerous.
Offering discounts when asked, or refusing flat out, might not be the best way to respond. By asking the right questions, however, you can gain valuable insight into why the customer is seeking a discount, and thus have ammunition that helps preserve your profits.
For example, when asked for a discount, you might start the conversion by saying: “Before I respond, would you mind if I ask a few questions so I can better understand your request?” Then consider asking these follow-up questions, depending on the circumstances:
To dig deeper: “Occasionally a client requests a discount, and I find I am able to be more helpful if I understand why they’re asking for one. Can you tell me why you think the price is too high and a reduction is warranted?”
To size up your competition: “I know you are talking to others about this project. Do you feel my price is dramatically out of line with the market?”
To highlight the value you are offering and clarify what’s most important to the customer: “I’m not sure we had a thorough discussion about the benefits you expect from this. Can we review those, as you see them?” Or you might ask, “What parts of this proposal are most important to you? Which aspects of it do you find less valuable?”
“Free” is an even more powerful force in the marketplace than “discount” – especially online. More and more customers expect to get things for free. As with discounts, the key here is to understand your customers and focus on delivering value.
Here are two ways you can innovate around pricing and perhaps prevent discount and freebie questions from arising in the first place:
• Pricing innovation. It’s not just about “how much” but also “when” the customer pays that counts. Think about the point (or points) in time when you require customers to pay. Successful approaches include: subscription plans, variable pricing, by-parts pricing, bundling and rental models.
• Payer innovation. Sometimes the customer who pays is not the consumer of the product. The trick is to think of third parties who might pick up the tab, or part of it. A classic example is broadcast TV. It’s free to you – the advertisers pay. Sponsorships and white-labeling are other examples. White labeling allows product companies to sell outside of their traditional market without having to drum up demand themselves. •

Daniel Kehrer can be reached at editor@bizbest.com.