The giving of discounts to close a sale is a common sales technique and has, in a sense, become the norm. The psychological basis of a discount is to make the buyer to feel good about his purchase by facilitating the perception of receiving a good bargain.
My advice to companies is to always offer cash discounts as a last resort. Instead, the company should offer additional items or services to make the deal more attractive. So instead of giving a 10% cash discount (which by the way is no longer attractive), the company could offer the client an additional month of service or credit vouchers of equivalent or great value.
The logic is simple. The cost of offering these additional items will usually be much less than the cash value of the discount. Hence, but offering these items as incentives to buy, the company improves its bottom-line. Also, if margins are sufficiently high, offering a 20% credit is more attractive than offering a 10% cash discount.
At the end of the day, the buyer wants to feel that he got a deal. How the deal is structured is up to the creativity of the sales professional. So use cash discounts only as a last resort.
SG Sales Guru
P.S. Giving a cash discount implicitly reduces it to competition of price which in turn undermines the value of your product and service. So think carefully before using this as a sales strategy.