Price Cuts: Are You Merely Cutting Your Own Throat?
When times get difficult, many business people get worried, and they cut the prices on the products or services they sell.
This can be a huge mistake.
The problem is that there is often real and long-term harm done to a business when prices are cut. The problem with heavily discounting on a regular basis? People’s perception of the value of your product begins to erode.
The second factor which comes into play is that by building a clientele which is motivated simply by bargain pricing, you have targeted very un-loyal clientele. The moment anyone else figures out how to sell a comparable product for less, those customers will simply switch to the company with the lower price. It’s a very shaky way to build a business.
Finally the more that a product or service is discounted on a regular basis, the less “real” the regular price becomes. After paying the discounted price on a regular basis, what customer would be foolish enough to believe the suggested retail price? I’ve seen many listings for products that not only mention the suggested retail price, but also the “street” price. It tells you what people really sell things for.
The Price Cutting Alternative
Here’s a strategy for building an effective and powerful offer without necessarily killing a business on price. The secret is very simple: add additional value. Instead of selling less, sell more!
Here’s a real world example I experienced with a client who had a string of pizza delivery stores. At that time, almost every competing pizza place within a 20-mile radius was couponing very heavily. The standard coupon that businesses would offer was two dollars off of a large pizza.
With an ever present two-dollar coupon, people got used to reaching into their pockets and handing over a ten dollar bill. Eventually, this approach trained their clientele into paying ten dollars for a large pizza instead of twelve.
There was an additional unintended effect with this approach. Whenever the customer didn’t have a coupon, they tended to get upset. They went through all of the emotional reactions associated with a price increase!
They’d paid two dollars less the last three times they bought a pizza, and now suddenly they had to pay more. They were annoyed. People would make comments that implied that something horrible had just been done to them. Rather than appreciating all of the times that they had gotten the pizza for ten dollars, they hated having to pay twelve dollars for the same pizza.
I recommended changing strategies. The thought was, “could we give something extra and keep the price at $12.00, yet have people perceive this as a better deal?“
The solution ended-up being a six-pack of Pepsi. Most people perceived a six-pack of Pepsi as being much more desirable and valuable than two dollars off on a pizza. Customers could choose between diet or regular Pepsi.
With this new offer, people happily paid the higher price and the number of people responding to the coupons increased.
Now, the truth of the matter was that the six-pack of Pepsi cost $1.64. So the client kept more money giving away a six-pack of Pepsi than discounting the cost of the pizza by two dollars.
This way, when people had a coupon, they got a wonderful extra item. If they didn’t have the coupon, they still paid the normal price for the pizza; they just didn’t get the extra “goody.”
By using this creative strategy, the client was able to differentiate themselves from their competitors. They were able to provide a higher level of perceived value to the customers. They avoided eroding their own product value. And, they got new customers who who were attracted to the “better deal.”
You can apply this strategy whether you are selling products or services. We’ve used it successfully with clients selling pizza to technology products.
The lesson is: don’t be so fast to bomb your price. What you might want to look at instead is “are there ways you can enhance your deals, add to the perceived value, and make more money in the process?”
The difference to your bottom line can be dramatic.
To your business success,
If you would like to discuss improved follow-up strategies for your company, call Sentium at 1(800)595-1288 to schedule a free half-hour telephone consultation.
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Richard Wilson is the Founder/Chief Marketing Strategist for Sentium Strategic Communications which helps companies dramatically improves their sales, growth and profitability. Over the past 31 years, his clients have ranged from start-ups to major technology companies.
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