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TIP: Price-Cutting Strategies

Tip of the Month

May 2009

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TIP: Price-Cutting Strategies

Consumers and businesses alike are looking for ways to cut their budgets and, as a result, businesses in every sector have seen sales diminish. Cutting prices might seem like the fastest way to boost sales, but is it the smartest sales tactic for you? It may be helpful - or it may prove to merely generate more problems for you down the road. If you are evaluating your sales strategy, there are really just two areas to consider: pricing and service.

Will significant price cuts hurt your brand image?
A solution that provides temporary relief, but sets the stage for future problems, is no help at all. Business owners, whose products fall into the “discretionary” category –especially those involving luxury goods or services (e.g. spa services, luxury automobiles or chauffer services, designer apparel, fine leather goods, high-end jewelry, etc.), have to give special consideration to the factors that influence their primary customer base. Customers who value the cachet of “exclusiveness” - and the prestige of luxury goods and services - won’t be attracted by moves that cheapen your brands. Deep discounts could cause irreparable damage to your products-especially when the economy rebounds. It may be nearly impossible to raise prices to previous levels after making deep price cuts, or perhaps the overall brand image might be damaged –appealing to neither high-end or bargain shoppers. There are other ways to appeal to high-end purchasers who are tightening their purse strings. Options to consider include offering:

  • “Package” deals. Buy one at the regular price to qualify for a significant discount for a second purchase.
  • Special (sale) prices-Exclusive Offers- to benefit frequent customers only.
  • A sliding scale of discounts increasing according to the final total of a purchaser’s selections (i.e. 10 % off up to $200; 20% off from $201 to $500 etc.).
  • Providing discounts in appreciation of customer referrals.

You might want to lower prices on the less expensive items in your product range, as a concession to today’s cost-cutting times, but do so with care. Don’t overdo it. It may be “fashionable” to be a bargain-hunter, but give your high-end customers select opportunities to take advantage of “special values” without taking their business elsewhere.

What service add-ons might you offer instead of price discounts?
Once customers are used to heavily discounted prices, they will be reluctant to pay full prices in the future. If you want to avoid being considered a discount seller, explore opportunities to compete on service rather than price. There is no “one-size fits all” solution, but besides the obvious -- like free or low-cost shipping --are there other ways you can improve the value you deliver to customers at a minimal cost to your business?

Or, perhaps, you may already be offering rock-bottom prices. Are there ways you can simplify your billing procedures, your pricing structure, ordering policies, etc? In other ways, what can you provide–that won’t cost you a lot-that your customers will appreciate? . Saving them time by making doing business with you simple and time efficient may be what’s needed to distinguish you from other discount providers... If you don’t know what to do to improve service, just ask. A limited “survey” of your customers might give you the information you need.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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