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Pricing Perils

Should you lower prices to lure new business?

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This story appears in the April 2001 issue of Entrepreneur. Subscribe »

If you run a service business and are thinking about offering a discount, you'd better think again. Business growth specialist Jeff Blackman says price promotions may be bad for business. "There's a difference between being a bargain and being cheap," explains Blackman. "Being a bargain means you deliver something of impact that's a reasonable investment. Being cheap means you're providing a service based solely on price."

In a service business, simply cutting prices may undermine the customer's perception of value, says Blackman. Because most service businesses deliver intangibles, defining value may be a challenge already. However, there are ways to use price as a tool to strengthen your business. The language you use is important; so is making sure you get something of defined value in return for the discount, Blackman says. Blackman advises his clients to never refer to a price decrease as a discount. Instead, he suggests calling them "economic concessions" and using them only to secure something from the client-such as a longer-term contract, quicker payment terms, a foot in the door if it's a new client or other benefits. Continually using discounted prices erodes profit margins and may create a negative perception of your company in the marketplace.

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