There are few common experiences shared by all of us: the joy of a new life, the pain of loss, the aggravation of tax time, and, of course, the inevitability of that blue coupon from Bed, Bath & Beyond in your mailbox every stinkin’ week.
Like clockwork, it comes, offering 20 percent off an item for your next visit. In my house, they build up like snow drifts in the coupon drawer, one after the next. My enthusiasm for using them is limited – I’m really not that excited about buying a new suction-cup mounted sponge holder for the sink or a fish-shaped cutting board, let alone new bathroom linens. But my wife is.
So are a lot of other people, too. And therein lies a lesson from Bed, Bath & Beyond’s B2C world that we can apply directly to the B2B world and to the value of CPQ.
According to a story in the Washington Post, those coupons are effective in getting people in the stores – but they’re also causing Bed, Bath & Beyond’s business to suffer. According to the article, the store’s profit margins have taken a beating – in its most recent quarter, revenue rose 1.7 percent but profit fell 10 percent, which executives blamed on “an order of magnitude increase” in expenses related to coupons.
With customers awash in coupons, the discount is no longer a bonus or an incentive to get people into the stores – it’s a given. Often, customers have handfuls of the things and get 20 percent off everything they buy. They expect the discount.
That means that it’s going to be hard for Bed, Bath & Beyond to roll back its coupon program to pull out of its profit margin death spiral, since it will be perceived as taking something away from customers that they expect, creating a loyalty problem. They may increase margin, but it will come at the expense of revenues as the people who come to the stores to cash in those coupons are likely to become no-shows if the program ends.
This should be a lesson to anyone who uses discounts as part of their selling strategy – a given in B2B selling. Managing margin is crucial to a profitable business; give too much away and deals aren’t worth the effort you put into closing them. On the other hand offering a discount to speed a close may be exactly what you need to succeed – your mileage may vary. By how much? That’s hard to say using manual means. But a configure price quote solution (CPQ) can help a great deal, by putting a threshold in place that keeps salespeople from increasing discounts past the point of profitability. Instead of fixating on margin, they can focus on closing deals and the business can be confident that margin objectives are observed and respected.
The other hazardous aspect of Bed, Bath & Beyond’s approach is that it trains customers to expect a 20 percent discount every time. There’s no incentive there – “I’m going to the store for a special discount!” – to drive customers to an action they wouldn’t already take, thus putting the business in position to create an experience that gets them to return for future purchases. Instead, shoppers wait for that coupon.
The failure of incentives is a common theme in the channel, where incentives are often managed without an understanding or measurement of their ROI. Channel partners come to expect the incentive not as impetus to change behaviors to help sales, but more as a regular rebate. Then, when the incentives are removed, the effect is often that the partner starts looking at other vendor options – exactly the reverse of what the incentives were aimed at accomplishing.
In all of these cases, the key is to make sure the incentive is designed to drive a behavior – ideally, a behavior that will continue even after the incentive is removed. That means you can’t put a discount program or an incentive plan on autopilot and allow your customers to perceive it as business as usual. They’re not simply meant to alter the mathematical components of a deal – they should make customers (and partners) feel better about their interactions with your company, build loyalty and contribute to a better experience. By allowing its customers to take the 20 percent discount for granted, Bed, Bath & Beyond has forgotten that vital objective.
To learn more about CPQ, visit our product page – or check out our CPQ Buyer’s Guide. To see how the Lead to Money suite can help manage channel relationships, check out our webpage.