Many small businesses find themselves feeling pressure to lower their prices. It may come when a low-priced competitor shows up in your market, or when a pinched economy hits your industry. Yet few small businesses can afford to get themselves involved in a price war.

There are a handful of times when dropping prices makes sense; for example, when your cost of doing business has dropped and you want to pass along these savings. But if your existing prices are set to cover expenses and necessary profits, lowering them could damage the bottom line. What's the answer? Consider using these tactics to attract and retain customers without getting out the red pen.

Emphasize customer service
By demonstrating the added value you give customers, you may be able to justify higher prices while keeping the competition at bay. You can showcase superior customer service through generous return terms, longer than average warranties, free delivery, express ordering for regular customers, or other customer care techniques. This tactic is more strategic than getting into pricing wars with competitors because it encourages long-term client relationships. Competing on price often leaves companies catering to fickle customers who may or may not return in the future.

Package products and services together
You can create more value for customers by grouping related products and selling them for a price that is greater than any single item, but less than it would cost to buy each one separately. For example, a bookseller might package elegant pens with journals or a dictionary with an atlas and thesaurus. This tactic can help you avoid permanently reducing prices on any single item while increasing your overall sales.

Decrease amount along with price
If you find the market is demanding lower prices, consider whether or not there is a way to offer goods and services in smaller amounts. For example, if you're a Web designer, are there efficiencies you can build into the project development process that would allow you to offer services at a lower cost? If you sell beauty supplies, can you package products in 6.5-ounce containers rather than 8-ounce? This tactic can give customers the perception that you've lowered prices while helping you to keep costs in line.

Add services
Instead of cutting prices, maintain them and include an additional service for the same amount. For example, a bookstore owner might offer free gift-wrapping with each order, or a personal trainer might offer an hour of nutrition counseling with the purchase of 10 sessions.

The views and opinions contained herein are not necessarily those of American Express and are intended as a reference and for informational purposes only. Please contact your attorney, accountant or other business professional for advice specific to your business.

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