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The Downside of Price Reductions

There are better ways to close sales without bleeding your bottom line.
August 30, 2010
URL: http://www.entrepreneur.com/article/217263

Customers are skittish. They're buying less frequently, spending less per transaction, weighing purchase options carefully and showing more concern than ever about value.

If they don't see something they need and value, they won't open their billfolds for any price. But when value and price are in balance, people are still buying. To get them to buy from you, remember these five important sales propositions.

Value Matters More Than Price
Price is what you get out of the sale. Value is what's in the deal for your customer. "Same-day installation, coffee brewed fresh every half-hour, the most-reliable service, the fastest delivery, the greatest selection, amazing service." These are examples of things customers value.

Use these questions to clarify the value your business provides:

Telegraph your value message, because if customers don't see value they won't buy at any price, or they'll simply buy whatever's cheapest.

Not All Products Are Price-Sensitive
Price becomes the focal point when products are considered commodities that are readily available and easy to substitute. Successful marketers work hard to develop a point of distinction--from flame-broiled burgers to one-calorie colas to 30-minute deliveries--to give their products a unique value. Make sure you do the same thing.

And price is less important when products are considered uniquely valuable. If you sell something that customers desire based on one-of-a-kind attributes (the most fuel-efficient car, the best place for an engagement dinner), customers are less likely to quibble over price.

Price Cuts Erode Your Market Position and Bottom Line
Trying to win business by offering the lowest price is dangerous and usually futile. Someone can always undercut you. Plus, if your business can't absorb the cuts, people will resist it when you need to resume normal pricing.

Better than slashing prices, promote limited-time offers that allow you to easily bounce back to normal prices. Then tie the reductions to product adjustments. For example if you usually include delivery, tie reduced pricing to a cash-and-carry offer. Or offer discounts for packaged deals, off-hour or off-season promotions, or bulk purchase offers that let you lower prices without abandoning your established price position.

How You Present Prices Matters
Especially in the current economic storm, present prices so they're quickly understandable and motivating. Here are a few tips:

Customers Want Options
Choices give customers control and lead to more sales.

Consider bulk purchase options ("five $50 rounds of golf for $195"), bundled packages ("an eye exam, contact lenses and reading glasses for one easy price"), a choice of features and services ("You choose: $750 includes washer/dryer set along with delivery and installation, or take advantage of our you-haul contractor's rate of $659").

Also consider lower-priced product lines (think of how many fine-dining establishments now offer happy hour or bar menus to serve the price-conscious).

Offer today's hypersensitive shoppers value, options and easy-to-understand prices to pave the way to stronger sales and business success.