Why Over-Discounting is Optimal: But Not for You

February 9, 2015

Executives of all stripes, but especially finance executives, have strong beliefs that sales reps over-discount. Recent research shows why not only is that expected, but why the conventional remedy, compensating sales on margin instead of volume, is not enough. What is fascinating about this phenomenon is that it holds true even if the salesperson is compensated strictly on margin, and even if the salesperson accurately estimates the probability of the customer purchasing at various price offers! 

This means that over‐discounting by the salesperson is rational, from her perspective, under the most ideal of circumstances. This whitepaper covers why and includes detailed risk aversion graphs.

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