ESCAPING THE DISCOUNT TRAP

SUMMARY
Brazil's Bosi e Faora, a manufacturer of medical devices, has been experiencing diminishing
profit margins. To attract new clients, the company's sales representatives have been
providing substantial discounts, but this has merely accelerated price erosion. Sergio, the
buying director of Santa Casa de Misericordia, a sizable charity hospital, is meeting with
Cora Milano and Augusto Tolentino, two of Bosi e Faora's top sales representatives. Sergio is
requesting a 20% discount on Bosi e Faora's goods and if he doesn't get it, he'll go
elsewhere for his business.
They are aware that if they yield to Sergio's demands, a risky precedent will be established.
Soon, additional clients will start requesting price reductions as well, and Bosi e Faora will
become entangled in a downward pricing spiral. They are aware that, in order to survive,
they must acquire Sergio's firm, though.
They suggest to Sergio using a "solutions selling" approach. As part of this plan, Bosi e Faora
would assist Santa Casa de Misericordia in improving patient care by offering training and
consulting services in addition to product sales.

Bosi e Faora's sales director Augusto Tolentino is the primary decision-maker in the case
study.

Problems in the case study

• Margin erosion: As a result of the company's aggressive discounting approach, Bosi e

Faora has seen its margins erode over the previous few years. Due to how it is
affecting the company's profitability, this is a serious issue.

• Dissatisfaction of customers: Some customers are growing frustrated with Bosi e

Faora's pricing practices. customers believe customers are not receiving the best
value for their money and that the corporation is not being fair. Customers may
decide to use different providers as a result of this.

• Competition from other medical device businesses is becoming more and more
intense for Bosi e Faora. It's challenging for Bosi e Faora to compete with these
businesses because they also provide discounts.

Decision problem

Should Bosi e Faora stick with its current discount policy toward clients or adopt a solution-
selling approach?

Criteria

• Increased profit margins

 • Increased market share.
• customer retention
• customer lifetime value

Alternatives

• Continue giving out substantial discounts; while this strategy might bring in new
customers in the near run, it will eventually eat into profits. Additionally, it will result
in price wars amongst rivals, which would further down prices.

• Focus on selling products with higher margins: This strategy can boost earnings in
the near term, but it may make it harder for the company to attract new clients
because it won't be able to give discounts to clients who are only interested in
lower-margin items.

• Adopt a "solutions selling" strategy. By offering clients a total solution that satisfies
their demands, this strategy can help businesses make more money over the long
run. By giving customers a greater grasp of the advantages of the company's goods
and services, it can also help to increase customer value.

Recommendation

My last piece of recommendation for Bosi e Faora is to use a "solutions selling" strategy.
This strategy has the best chance of assisting the business in boosting profitability,
enhancing customer value, and setting itself apart from rivals.

Here are some of the reasons why I recommend this approach:

• Long-term profitability may rise because Bosi e Faora is able to charge more for its
goods and services by offering customers a full solution that matches their demands.
Profits may eventually rise as a result of this.
• It can increase customer value: Bosi e Faora can increase customer value by helping
customers grasp the advantages of the company's goods and services. In the long run,
this may result in customer retention and repeat business, which may also help to
enhance earnings.
• It can set the business apart from its rivals. Bosi e Faora can set itself apart from its
rivals and gain a bigger market share by adopting a "solutions selling" strategy.
Profits may eventually rise as a result of this.