This week's questions and answers
How to Cut Prices Without Giving Away the Store
How to Cut Prices Without Giving Away the Store
Q: What do you think of offering deep discounts? My husband thinks it would be a good way to drum up more business but I worry that it will cut too much into our profit margins. Thoughts?
— Meg
A: As I am wont to say – ask them what they want, then give them what they want . I agree with your husband, what people want today, for the most part, are ways to cut back and save. If you can figure out a way to do that that works within your business, there is no doubt you will get more business; less profit per sale for sure, but more business.
The danger of course is that if you do it too much, you risk losing money, damaging your brand, or both.
That said, when cutting prices works, it really works. Consider: In the past year, two Fortune 500 companies that had banner years were Wal-Mart and McDonald's. What they share in common of course is that they try to offer value for less.
Another advantage to cutting prices is that it fosters loyalty, and in an economy like this, that is no small thing. For instance, Nolan Ryan and his team of new owners of the Texas Rangers recently announced that they are " lowering prices on concessions, parking, and merchandise " because it is a way of "showing appreciation for the fans' loyalty and support."
If it works for the big boys, it can work for us. Here are the dos and don'ts of cutting prices:
Do
Figure it out : Usually it is not a good idea to simply cut prices across the board because 1) that makes it look like you were charging too much before, 2) it turns your brand into a cut-rate warehouse sort of deal, and 3) it lessens the "thrill" for customers of finding a great deal on a few, selected, desired items.
Therefore, the key is to look for products or services that are both popular and in which you have a healthy profit margin so that you can afford to take a hit.
Look for less expensive items and/or vendors : Another option is to purchase and sell less expensive items than you normally carry. I have a pal who sells antiques. His motto is "It's all in the buying." He knows that if he can buy an item cheap enough, he'll make a profit.
So consider buying cheaper items from your regular vendor, or look for new vendors. If you need a list of wholesale suppliers, I have a great search engine of them over at my website.
Let people know : Toot your horn. Have a sale. Advertise it. Tweet it. Since the whole point of this exercise is to get more people in the door, it follows that the more you let people know you are having a sale, discounting, or whatever, the better you will do.
Offer value for less : Cutting prices on quality items that people want is usually better than discounting old crap that you would like to get rid of. Offering value for less is what fosters loyalty and enthusiasm.
Don't
Do it across the board : You have to maintain your brand, and unless your brand is "the low cost leader", cutting prices too widely will backfire. Be judicious and do it only on items that are more certain to get people to buy from you.
Lose money : You may deploy the "loss leader" strategy whereby you take a loss (or close to a loss) on something in order to get traction and sell more of your other items. That's smart, but just be careful. The point here is to make money, not lose money,
Lose sight : Another risk here is that customers will come to expect the lower prices – that might be good, but probably not. You don't want to train them to expect discounts, or worse – to wait to shop with you until there is a sale.
So just remember that discounting works, but usually is best done conservatively.
Today's Tip: Looking for some help with your business? Then surf over to Focus.com. Recently named by Crain's B to B Magazine as one of the Top 10 media sites of 2010, Focus offers a network of world-class business and technology experts, real-time Q & A, product and service information and advice, and personalized support. Steve says check it out .
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