Most businesses will go through a tough time at some point. Maybe a significant customer has gone elsewhere or even gone out of business. Maybe there is some recession or general economic malaise. Or maybe your industry has been deregulated and competition has gone stratospheric. Cutting your prices is one of the ways you can stimulate sales. But think carefully before you act.
If your business is going through a tough time, dropping prices to stimulate workflow seems like a logical answer. In the short term, you might relieve pressure on cashflow by generating one or two sales or picking up a few new customers on the lookout for a bargain. But don’t let the short-term benefits cloud your eyes: lowering your prices can have serious long-term effects on your business. Before you take that step, ask yourself some questions.
Do you want to raise prices again after the tough times have passed?
Before you adjust your pricing strategy, think about what the goal is once the storm has passed. Do you want to raise your prices again – back up to (or higher than) the previous level? Are you going to be able to do this or are you likely to stay “stuck” at the reduced prices? Can you afford for that to happen?
If you think it’s possible to hike prices back up after a certain time, then think about the exit strategy before you even start. Have a clear plan, with timing or criteria against which you can judge when the time is right to regain the previous price level.
Is it going to damage your brand?
If your business targets the premium end of the market, a generalised reduction in prices could negatively impact your overall brand. Luxury goods are usually the first hit when there is a general downturn in the economy – but demand will pick up again when the skies clear.
If your priority is to protect the value of a brand, it may be a better idea to ensure you’ve got enough financial reserves to be able to get through the tough times without reducing prices. That way, you won’t have to compromise your reputation for quality.
Another possibility may be to package the price reduction differently. A Christmas discount or vouchers for discounts on future purchases can be easily limited in time and to a single transaction. It may also help to increase customer loyalty and encourage repeat purchases.
Is this a short-term or long-term issue?
What if the cause of the drop-off in business is long-term and irreversible, like the obsolescence of the goods you offer due to innovation? Then a reduction in prices is never going to be a temporary step – it’s more like following the dying market on its terminal downwards trajectory.
Do you just want to get dragged down, working more and more for less and less reward? Or would it be better to stick with the current price level and just take what you can get while building up something more future-fit? If it’s the latter, it’s time to get your thinking hat on to create a strategy while you still have time.
Think about the alternatives to price reductions
Adjusting your pricing strategy isn’t the only survival tactic for tough times out there. There’s plenty more besides. You could maintain your prices, keep targeting the customers at the top of the market but think about the ways in which you can add value. You could create a new, value product to cover the lower-paying market segment while keeping the premium product line. If your industry is in terminal decline, channel your energies into acquiring new skills, developing new services and setting out a roadmap to a more successful future.
There are so many possibilities! Good luck!