It is undeniable that the economic downturn following the 2008 Global Financial Crisis had an impact consumer buying patterns.
Shoppers have become increasing price conscious and small and medium business owners have felt the effects of this. If you ask business owners what strategy would they use (or do they use) when sales have been falling and costumers are waning, I bet that the majority if not all would say that they offer discounts, or price cut.
Its a pricing strategy that has been around since the beginning of sales-time and while it may help spike sales and attract customers initially, its important to remember that it should only ever be used as a short term strategy, and only if it complements your product offering and brand message (for example, if you brand is of high end luxury, you should never discount). If youre constantly slashing prices and seem to be in a perpetual fire sale state you may actually be hindering your sales and hurting your branding long term. In this article well show you how this may happen and some alternative strategies to price cutting. Three big reasons why you shouldn’t always price cut;
It hurts your brand
Whether we agree with it or not, it is human nature for people to value something based primarily on how much it costs. So quite simply, the more you discount your product, the lower its perceived value falls in the mind of the consumer. Over time, this lowered perceived value will erode your brand and your brand will become synonymous with cheap or bargain (which is fine if that is what your brand message is, but that should be a conscious choice you make for your business, not one that is made for you by lazy pricing strategy!)
There’s no turning back
Once you offer a discount, regardless whether its the first pitch or the 6th, there is no turning back – you have set a precedent with the customer, and really anyone else they send to your business via word of mouth. So as you can see, you have essentially set a bad precedent regarding your product pricing. The customer expects the same discount every time they purchase and anyone they send your way will also expect the same.
It hurts your profit margin
As we all know, its no easy feat running a successful, profitable business, especially with todays increasing competition. Your profit margins are your bread and butter, without profits there is no business! So consider this basic math – every time your discount, lets say by 30% (which might not seem like a lot to you at the time, compared with the usual 50% off sales) you are essentially slashing a third of your profit. Thats a third of what you pay yourself, your staff and what goes back into building your business.
Strategies you can adopt instead of price cutting
So now we’ve established that price cutting isnt always the best option for your business, its time to give you some alternative strategies to implement that will increase your sales and still attract customers.
The biggie – Focus on value perception! As a business owner or sales person, your number 1 job is to build up the value perception of your product or service in the mind of your customer.
This should always be your number one priority. Instead of cutting the price so that the new lower price fits the product, increase the perceived product value so that it matches the original, higher price. You can add value in a number of ways, from adding addition low cost, high value perception bonus products or services, to including or increasing a warranty, including extra service such as free installation or cleaning, or product training (again, this is product dependent).
Know your customers
Before you even attempt to make a sale, you (and all the people working in your business) need to understand how your product or service can add value to your potential customers life. You need to think beyond the obvious and outside the box. For example, your product might help to free up more time for them to spend with their family. The three reasons people buy is to make or save money, save time and for the health and happiness of their family – remember that; money, time and family. Work out the priority of these for your target customer. Know what their problems are and what they are looking for in a product or service.
Once you know this, to will help you position yourself in a way that makes what youre selling a no-brainer. Price isnt even an issue because youve successfully shown that what you have can solve their problems. Its been said before, but you should be able to understand and communicate your prospects challenges better than they can themselves. If you can do this, this tactic alone will help you win a sale.
Believe what in what you’re selling, believe in what you say and be passionate
Its advice often given, but advice often forgot. It is invaluable for every sales person and business owner. Potential customers can tell if you believe in what youre selling, and it has a huge impact in whether or not they buy. When you hesitate or your confidence waivers it makes the customer doubt you and they may even feel that you are being dishonest, and nothing kills a potential sale quicker. You need to be confident – know that what you are selling can help the customer and it is your obligation to do so.
Pricing strategy is fundamental to the success of any business, big and small so you need to put as much consideration and planning into it as you do your business and marketing strategies; pricing shouldnt just be a knee-jerk responsive action to sudden competition or a drop in sales. You can use either temporary discounts or permanent price reductions as part of your pricing strategy but you need to consider very carefully what the long term impact will be, not just the short term returns. Yes, very often price-cutting can help you quickly increase sales volumes, but long term, it can cause irreparable damage to your brand and make you less competitive.