The art of price-setting in a recession
When the economy goes south, demand falls sharply, and businesses can be hasty in slashing prices to just to compete. However, Paul Nunes of the Harvard Business blog asserts that you should not be too quick to pull the trigger. Price cuts have the undesirable effects of decreasing profit margins and customer conditioning. Before you do so, study your options, and yes, you actually have a lot.
Create a loyal following. Establish your brand as a trusted name such that price is not the only factor when thinking about your products and services. Maintaining high quality and great customer service can go a long way.
Highlight advantages over competition. Advertise your strengths. Price is not the end-all and be-all for everyone. Timely delivery can also be a factor, a longer warranty, and so on.
Study alternatives. Do you have a unique offering or are there viable low-cost alternatives to your product? How’s the price movement on their end?
Know your target customers. Products aimed at the higher income brackets may not be as sensitive to price cuts as those that are for budget-conscious consumers. Other needs such as maintaining an image, security, and others may be more paramount to these buyers, so focus on those areas instead.
After going through all these and you still find the need to cut prices, then these are his advice on how to go about it:
Be mindful of the customer’s ‘paycheck cycle.’ The Wall Street Journal recently reported on how companies are successfully discounting based on how close customers are to payday. All buying power is relative–and it can vary greatly from week to week and even from day to day.
Create a perceived discount by including an extra amount “free.” It’s an old trick, but still a good one: Giving customers “20% more!” product may cost a lot less than offering them a 20 percent discount while appearing equal in value to the customer.
Discount on a customer-by-customer basis. Haggling is back. And it’s everywhere. Customers are now prepared to ask for discounts even in grocery stores. Companies should let their sales people know how much leeway they have to negotiate a deal, and should train them to ensure they consistently realize the best negotiated price.
Offer old-school financing. Remember layaway? These payment-deferral programs are back, enjoying a revival among some retailers like Kmart, for example. And a new firm, eLayaway , has updated the concept, allowing customers to choose products from about 1,000 local retailers online. The site arranges for monthly deductions from customers’ bank accounts in return for a 1.9 percent service charge.
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