Is It Wise To Cut Prices?
Many businesses automatically cut prices when times are hard in an effort to outsmart their competitors but often, all that happens is that they end up in a price war that might be great for customers but detrimental to business.
Don't automatically assume that slashing prices is the only effective way to make sales and draw in new customers. It is one method, of course but it is not necessarily the best way forward -- consider the following:
If you slash your prices too drastically, you can come across as being desperate. This is not a good image for your business and it can make customers nervous because they are wondering if you are about to go under. If you sell a product such as a holiday, for example there could be some big issues for potential customers if they are worrying about being stranded abroad, for example.
By slashing your prices drastically, you may give the impression that your original prices were too high in the first place and this can cause resentment, especially in existing clients who have paid top price. Nobody wants to feel ripped off, so consider this before you cut your prices. It's fine to have a sale, but maybe you could offer a special deal for your loyal customers to soften the blow if this could be an issue.
Companies that continually have sales can suffer because potential customers will hang around and wait for further cuts before they buy. Also, if people know you have frequent sales, why would they buy anything at full price? You could end up shooting yourself in the foot…
It's OK to cut prices, but how will your profits stand up to coping with your overheads? Can you afford to cut prices and still pay your way comfortably? You have to ensure that you have a certain level of profit or you could risk your entire business.
Are you compromising the quality of your products or services in order to offer lower prices? If you have existing customers who are likely to make repeat purchases, they will know that you are trying to cheat and this could harm your reputation. It's like that bar of chocolate that keeps getting smaller -- we all notice when compromises are being made and it doesn't always sit well with the customer.
Finally, a price war can get nasty and in the end, nobody really benefits. So what is the alternative?
Assess your place in the market
Before you slash your prices, try to refocus on why your customers buy from you in the first place.
Do your products offer good value for money already? Do you offer good quality products and services that are superior to your competitors? If so you should carefully consider whether to slash prices other than for the occasional special offer. If you have a quality product which is superior to your competitors, your customers will come to you in preference to them anyway -- you may need to reiterate the benefits of your products in this respect rather than simply cut prices. Many consumers would rather pay a little more for a superior product and we all know that you generally get what you pay for, so don't cheapen your brand or your products unnecessarily (literally and metaphorically).
Do you offer a unique personal service that people are happy to pay for? These days everything is instant and very impersonal -- even supermarkets are now expecting us to serve ourselves at automated checkouts and banks are pushing us to use automated cash machines rather than go to the counter for service. Many consumers miss that personal touch and the old fashioned level of service that we used to expect, so if your business can promise to look after customers in a way that other businesses won't, then you already have the upper hand without needing to cut prices. Just make this your USP and make sure you push it as your main benefit.
Is your product or service vital? If so, consumers may well buy it anyway, whatever the state of the economy or how cheap they can get something similar elsewhere. If your product serves a niche market where customers can't go elsewhere for whatever it is you offer, you should definitely not cut your prices.
Price isn’t everything
Price isn't necessarily the most important aspect for many customers. People are also looking for quality, service and reliability so there is plenty you can do before you consider slashing prices.
For instance you may even be able to offer flexible payment terms rather than drop the price, making your products and services more affordable. Try offering a monthly subscription spread over six months or three equal payments to help your customers pay on easy terms but do ensure that you are not infringing any rules and regulations from the financial authorities.
Rather than drop your price, could you find a way to add value to your product or service that would justify the price? You could offer something like gift wrapping or some sort of bonus or voucher for money off future purchases. How about adding a booklet or DVD that would help your customers get the most from their purchase? There are numerous ways you could add value at a low cost to you, rather than reduce the overall price -- how about faster delivery, for example.
Could your product or service be presented as a tiered package such as bronze, silver or gold levels which would be priced accordingly? This would give customers more of a choice about the prices they pay.
If you run a traditional bricks and mortar business, could you sell more online to reduce your overheads and marketing costs and enable you to reach a wider audience?
It is usually better to look for alternatives to keep your prices stable rather than simply cut prices and get into a price war with your competitors. This can be a dangerous and risky strategy -- especially if there are some real alternatives as outlined above.