It’s a common temptation in a competitive market to offer the lowest, most competitive prices to attract more buyers and get them over the line. It is one of the most common pricing strategies used by small business. Before you slash your prices to get that edge over your competitor, it is worth considering the downsides to lowering your pricing as well as other strategies that might help you maintain a competitive edge in your market.
Why the price cut?
It’s worth taking a moment and considering WHY your competitors have lowered their prices. Are they new to the market and wanting to stand out by offering the cheapest pricing? Is this what the market wants? Your competitors may have different reasons as you for considering a price cut.
Be sure that discounting will protect your profit or increase it. In some cases, it is more profitable to sell fewer products at a higher price that more at lower prices.
Does Lowering Pricing Change customer expectations?
Take for example my industry- Photography- one of the most competitive creative industries. The biggest problem photographers face with competitor based pricing is the expectation discrepancy. The business things “I’m offering a special price- customers have to be realistic about what I can offer for that price.” Market suggests, however, that customers do not tend to lower their expectations just because the price is lowered.
Another issue to consider is whether competitor based pricing strategy will become your most powerful differentiator. Is this a good thing? Do you want your clients to refer other clients to you because you are the ‘cheapest’ in the industry or because your product/service is the best in the industry? This might be a good thing if you do in fact want this to be your point of difference. Many small businesses, however, get to the point where they would like to be known for something else. They don’t want to be selling for the lowest price ‘all’ the time.
Exercising caution when offering Discounts and using Special Offers to generate more sales
Having the lowest, most competitive prices can be a very strong competitive advantage. Unfortunately, it is often an advantage that is difficult to sustain simply because undercharging can devastate your profits. If you’re a service based business, it’s even worse! It’s harder to get leverage in a service based business; there are only so many hours you can sell.
Start with minor cuts and see if that makes a difference to sales. Lowering your prices should be seen as a short-term tactic to boost cash flow, not a long-term strategic move.
If you must discount, make sure the cuts are communicated as special offers, or one-offs to help loyal customers through difficult times. Remember, you will need to increase prices again in the future, which could be more damaging to your long-term survival than price cuts now.
Consider your FOCUS – Before lowering your pricing, identify your business SELLING POINT or strength. Focus on communicating your unique selling point to your customers. You can build your relationship with existing customers by being more personable, attentive, and offering overall better customer service. Marketers generally agree that the key to growth is to find ways of making your product or service less price sensitive – that way you keep the focus on value rather than volume.