All exporters, international trade professionals, international sales experts, and business development professionals receive requests from new and current customers for discounts on a daily basis.
I have been involved in many face-to-face, online, and written negotiations that have included a request for a discount and have learned some excellent strategies over the years. Here are my 10 effective techniques for managing requests for discounts in international trade:
1. Do not accept and confirm requests for discounts immediately
When you receive a letter containing a request for a discount, reply to the letter quickly, but let your customer know that you will assess the possibility and inform them of the result at a later time. Even if you are willing to accept the request, do not announce your acceptance immediately. It’s better to answer the request at the end of the day and state that, having analyzed the current situation, or considering facts including the quantity, payment conditions, and history of your relationship, (or other reasons), you agree to accept the request. If you can’t answer at the end of the day, the following morning is equally acceptable. Those who do immediately accept and grant the requested discount run the risk of their customer requesting further discounts in the future.
2. Do not offer round numbers (like 5% or 10% / $500 or $1000) for your discount
Compare these two statements:
- I agree to decrease the price by 5%.
- I agree to decrease the price by 4.7%.
A round percentage or amount as a discount means that you are answering without exact analysis, so your customer may request even more. When you propose a non-rounded number with some decimals, it usually means that you have done some calculation and this suggestion is a firm and fixed one. By using a non-rounded number, your prospect will understand that you’ve done the analysis and have calculated the best possible discount.
3. Quick, large discounts can devalue your product brand and image
A quick and high discount is detrimental to trust in professional negotiations, so offer a logical price from the get-go to avoid this situation.
4. Do not offer the same percentage or amount for all items if you have more than one
If you have more than one item on your quote, do not offer the same percentage or amount for all your items or a fixed amount of discount on the total value. You should offer a lower percentage for the item that has a higher price and, if it makes sense, a higher percentage for the item that has a lower price. This looks like you are giving a greater discount on the overall order but actually can work out to a cheaper price than a lump-sum discount for all the items. Take, for example, this scenario:
You sell two products: A and B. A’s unit price is FOB $27 and B’s unit price is FOB $4.5. Your quotation is for 10000 pieces of A and 1000 pieces of B. So, your total amount is equal to $270000 plus $4500 which is equal to $274,500. You can either accept a 3% discount on the whole quotation, or you can offer a 1.2% discount for the first item and a 6.5% discount for the second item. The total amount in the first scenario (a 3% discount on $274,500) would be equal to $8235. In the second scenario, (a 1.2% discount on $270,000 and 6.5% on $4,500) would be $3532.5 (3240+ 292.5). In the first scenario, the discount doesn’t sound like much (but it is quite substantial). In the second scenario, it sounds like you are offering a larger discount, but the actual discount is significantly lower.
5. Discount as a percentage or a given amount?
You can offer your discount in the form of a percentage on the value (for example 3.5%) or a given amount of money. Let’s assume that you have two customers and grant both of them a 3.5% discount. The first customer’s quotation is equal to $80,000 and the second is $1, 800 000. The amount of discount for the first customer is $2,800 and the amount of the second customer is equal to $63,000. The second customer will be more satisfied if you tell them that the discount is equal to $63, 000 because it is a larger number. However, the first customer might be more excited to hear that you will reduce the price by 3.5% because, in this case, the percentage sounds larger than the dollar amount. Think and select the method that elicits more excitement from your customer and always ask yourself, which number will be perceived as larger and more enticing by your customer.
6. Involve a third party in difficult situations
Do you have customers who bargain a lot and tire you out? Just tell them that this is the maximum possible amount that you are authorized to grant, but you will talk to your manager (or any superior) and will inform them later of the decision. By using this technique, you can quickly decrease the resistance from your customers who usually will stop bargaining because they know that you did your best.
7. Remember, your discount is not just in the form of a financial concession
For example, you can train the customer or modify the packaging based on their instructions without increasing your costs. Furthermore, you can send free-of-charge products for marketing or promotion. You can also provide them with some free spare parts to support their warranty and product quality for the end-user.
In some situations, you might be able to change the Incoterms® rule instead of granting a discount. For example, let’s say you issued a quotation on the base of FOB any departure port, and your customer asks for a $9000 discount. You can reject the request for a discount but offer a CFR port of destination price instead of FOB port of departure, as long as the cost of freight to the port of destination is less than the discount requested. Or, you can offer CIF instead of CFR, you’ll just need to add insurance, but this creates better value in the mind of your customer and gives them peace of mind. You might even be able to modify the product based on the requirements of the customer instead of giving a financial discount.
8. Explain the reason, applicability, and limitations of the discount
Study and learn about the different types of discounts in international sales and procurement. Some kinds are quantity, cash, and seasonal discounts. Let your customer know why you are granting a discount, and in case it is a one-time concession for this specific transaction, tell them clearly not to expect it on their next order. You might need to say, “this discount is a seasonal one and is solely applicable to order number 123 when submitted before Oct 15th.” Make sure, if there are any deadlines or limitations, they are clear to your customer.
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9. Manage expectations and keep something for a rainy day
Do not announce all your discount policies at the beginning of the negotiation or at the time that your customer asks for a discount. Keep something for closing the transaction. In most situations, you will need to be generous at the end of the meeting.
10. Pay attention to your body language or the tone of your letter
You should be serious and firm at the time of accepting or rejecting a request for a discount. In a face-to-face meeting, your body language and vocal tone should assure your partner that this is the highest possible discount. On the other hand, when you communicate in writing, your written tone should be firm yet respectful. Your writing’s tone, structure, and expressions shouldn’t signal any hesitancy or room for flexibility in the future. When your customer reads the letter, she or he should believe that this is the final offer and there is no more room for a discount. Pay attention to the following sentences:
- As a valued customer, I agree to at least a 5% discount on the price. Please let us know if it works for you.
- As a valued customer, I have decided to grant you the maximum possible discount which is equal to 4.7%. Please confirm and send your advance payment to let us start the production process.
Requests for discounts in international trade are great opportunities for closing lucrative partner and customer deals. Many international customers ask for discounts on different occasions and, by using the above techniques, you can manage their expectations well. This lets you continue business in a satisfactory manner for both parties.