They say "emotions are the wild horses that drive people" and certainly greed and fear are emotions that drive many business and buying decisions. The desire to make as much as we can is the greed that often drives the seller side. Conversely,the willingness to lower price is a response to the "fear" on the sellers side that we will lose the business which makes us more willing to discount. The need to "buy low" and save money is the greed that drives the buyer side. Conversely, the willingness to pay more on the buyer side is driven by the fear of getting something that doesn't work!
Greed drove Apple to overcharge for their new I-phone and "fear, or embarrassment" of getting ripped off drove the outrage of jilted buyers to want a refund. Which in turn created fear that got Job's to agree to give a store credit of $100.00 to all the original buyers. Another decision based on fear, fear of losing customers and good will which would in turn lead to more lost sales (and less money, uh oh, there's that greed thing again!).
Anyway, enough Apple bashing... what can we learn? First, think hard about how you set prices and price increases. I've seen too many companies who were willing to sell for a $1.00 one year suddenly decide that they needed to sell for $1.50 the next. Then they immediately try to get the increase all at once, rather than a phase in which is usually more logical. This often happens because they felt like they had made a bad deal (fear which leads to anger) and now want to essentially "get back" at the customer. A fatal strategy! Step back, think rationally, and come up with a more reasonable decision.
Now, in regards to the concept of "Cash is King", and when confronted with a customer who wants a reduction in price, what can we learn from this situation? If you need to make a concession, it is usually cheaper to give away product or services rather than "cash". Steve Jobs could have sent out rebate checks for $100.00 but that would have cost him $100.00. Instead, he gave away a store credit of $100.00, but now ends up giving away less than if he had given away cash. There is always "margin" in product, so by giving away a "credit for merchandise" he gives the customer a $100.00 value that costs him $100.00 less the "margin" that he would make on the product (which obviously is a lot at Apple!).
How does this apply to your business? Figure out what it costs you to make product and then what it costs for you to give it away. I'll bet you'll find it's a lot better to give "an extra case with 12" than to take off $'s or %'s. Here's an example:
If your product sells for $1.00 and you sell 10 you make gross revenue of $10.00. Assume your manufactured price is $.60, with a per unit profit of $.40. You end up making $4.00 of gross profit on a sale of 10 units. If your prospect asks for a $1.00 or 10% discount off the sales price your profit is now $3.00. You lose $1.00 in cash or 25% of your profit!
On the other hand, if you offered to give away a product that is worth $1.00, your customer gets a full $1.00 of value but you only lose $.40 (the manufactured cost of the goods provided). If your prospect asks for a $1.00 discount or a 10% discount you gross $9.00 on a sale of 10 units. But that $1.00 or 10% discount reduces your profit from $4.00 to $3.00 so you end up losing a full $1.00 in profit. From my seat, I'd much rather give away $.40 then $1.00 any day! Another way to look at it (CFO's love this example) by giving a 10% discount in price you reduce your profit on that sale by 25%... ouch! Discounting off the sales price has a much bigger impact on profitability than most sales people realize.
So, let's think hard about giving away "cash" or percentage discounts and try to find ways to give away products or services that have full value to the customer but reduce our profit margins less. Be creative and I think you will find ways to make this strategy viable in your business.
Action Step: First, learn to sell in a way that minimizes the need to discount! Second, do the math and find out how best to make this idea work in your business. Don't be afraid to get help from the financial officers in your company... I'm sure they will be flattered to help and applaud your initiative!