These days, when business is tough we have constantly think of ways to compete better and when we are going through a recession as bad as the current one, there is a great temptation to cut prices or even to think you need to cut your prices just to compete. It is simplistic to suggest that you never have to do this but its worth fighting hard to ensure that this doesn’t become a habit.
Key to giving you the best chance of holding prices as high as you can, is to have a strong brand, (see our blog on building a strong brand here) and we talk there about defining the value you offer to your customers.
Communication of your products or services in the context of the value you deliver to your customers gives you greater control over your pricing. But here are some other tactics you can use to make sure the sales conversation is about issues other than purely price. Back up your proposition with customer testimonials
Bundle your products to extend your product range and create a range of low- to high-value offerings and set pricing price accordingly. This will enable you to satisfy both ends of the market simultaneously without seemingly cutting prices.
Reducing prices to generate more sales (or to stay competitive) will not improve your business over the long term, but you can mitigate their effect on profits by control company costs and reducing inefficiency. Streamlining operations and outgoing expenses is good practice. We tend not to prioritise this when times are good but we can’t afford not to now.
Try and innovate in order to offer something unique – this applies to the products you offer as well as your business model. Increase resourcing (even if its intellectual resource if you don’t have the funds) to generate new products or ways of doing business that give you an edge either negotiating customers or in the market. Innovative products are great but don’t forget that it took 5 years for the iPod of slow sales before to become an ‘overnight’ sensation!
If you simply cut your prices just to compete sends out all the wrong messages. If you do need to cut your prices, reduce the service offering.
Getting into a price war with the competition or a horse-trading battle with your customers– will just send you into a downward pricing where no one wins, unless you adjust the value of the product in line with the price drop. Disguise any price cut or bundle an offer.
Typically high-value products priced appropriately are more price-elastic so it will be a waste of time discounting pricing – it is unlikely to change sales uptake, lower-value products will be responsive to price cutting.
If you do get into a price fight, and price-driven customers threaten to take their business elsewhere keep pressing on the unique value of your product to their business, thus justifying the price, or simply let the customer take his business elsewhere. If he is so focused on price alone, he will always do this. Relentless price-driven customers are mercenary and will not be loyal – you might cut to keep the business now but he’ll be back next year for more.
Author Matthew Simmons