Using marketing to create meaningful product differentiation separates you from competitors and allows you to command price premiums. One differentiation strategy should be the elimination of bad discounts. 

Discounts should never lead to a loss of margin. Instead, discounts should reward customers for activities that improve their value as a customer - either by reducing your costs or improving demand. 

As a first step, evaluate and build systems that reward customers based on desired behaviors.

• Not getting paid on time? Equate prompt payment with a discount that reduces your aging.
• Have customers that are time consuming? Provide a discount for ordering online.
• Have customers that are not properly utilizing their software? What about discounts that kick in once certain adoption milestones are achieved?

With win win discounts in hand, sales is then equipped to suggest discounts from a menu. The customer can then select the discounts that are in their best interest.

It seems every week we talk to another professional services shop trying to kick-start their marketing and sales process. We sit down with the founder and ask the same question: “how are you different from all the other firms out there?”

When we ask that question, we get the same answer: we have a global delivery model, we are client centric, we put people first, we are domain experts and/or we really understand our clients.

To paraphrase Tyler Durden, with those credentials, you are beautiful and unique, just like everyone else.  Your competitors have the same answer. They have a global delivery model, they are client centric, they put people first, they are domain experts and they really understand their clients. 

So if you are just another professional services shop, what do you do when it comes to answering the question: “so how are you different from all the other firms out there?

The scenario is fairly typical. You launch your SaaS application for $14.99 per month. A few months later, a competitor launches a competing service for $10 per month. How do you respond with a competitive offer without cannibalizing your existing customers?

We asked a number of software executives for their thoughts on the topic and have summarized their responses below:

Paddy Srinivasan, CEO, Opstera ()

In the above scenario, you are introducing a new tier in the Free->Premium continuum. The inherent risk is that existing customers might want to downgrade to the new level to save albeit with a constrained set of features. While you cannot stop this, one way to have your customers think about this decision is to make the distinction between the SKUs extremely clear in the new tier vs. the premium SKUs. For example, at the low-end customers might be able to only perform 50 transactions a month (or an equivalent measure that makes sense in your business). While this might be okay for someone who is getting on board just to try the service, existing customers must think twice about downgrading for the ever-present fear of "what if I grow?

Complexity is bad. Unless it is good.

For ISVs, the days when a license was purchased up-front and the software was delivered and installed on-premise are gone. The proliferation of SaaS business models and the competitive landscape is demanding pricing models that are more flexible (and more complex).

It helps that new SaaS billing platforms are leading the charge and providing entirely new ways to price and deliver and collect for software licenses.

While complexity can negatively impact the sales cycle, it can also simplify the sales cycle by offering pricing configurations that are customized for every consumer or enterprise.

More choice is not always bad for customers.  

Here's a typical scenario. You launch a SaaS application for $14.99 per month. A few months later, a competitor launches a competing service for $10 per month. While it is tempting to reduce your price to attract more users, there is a danger of cannibalizing your existing customer base to accomodate the lower price.