An Expert’s Guide to Discounting

Cutting prices without cheapening your image or losing full-paying customers is an art. Timing and flexibility are crucial

Think before you slash. That’s the advice John Quelch, a professor of marketing at Harvard Business School, gives to business owners tempted to cut prices. “You don’t want to give away your profit margin to customers who still would have paid full price,” he says.

Whether they’re following Quelch’s advice or acting impulsively, nearly 30% of small business owners say they have lowered their prices, according to a February survey by the National Federation of Independent Business. “They’re struggling and asking, ‘What can I do to save my business?'” says Martin Lehman, an adviser with the New York offices of SCORE, a nonprofit business counseling group.

If sales are hemorrhaging or customers are flocking to dealmaking competitors, discounting might be necessary. That’s especially true if you’ve already exhausted other options, such as offering consumers extra perks or improved service. But chopping prices is not without risks, including a cheapened brand image and customers who will never pay full price again. And if there’s no demand, even signs that scream “Lowest Price Ever!” won’t draw customers. “The primary factor that determines the price you’re going to get is what the demand is,” says Roland Rust, chairman of the marketing department at the University of Maryland’s Robert H. Smith School of Business. “In a situation where people want things less, the price has to be right.”

To discount successfully, you need to take a look at what your competitors are up to, then analyze your company’s previous experience with promotions. If discounting is uncharted territory, you might experiment with a short-term sale to test the waters or, if you can afford it, bring in a research firm to gauge customer responses to proposed price cuts.

You’ll also need to avoid the common blunder of sacrificing quality or customer service so that you can lower your prices. “Once a company gets a reputation for poor quality, it’s hard to turn that around,” says Rust. Another mistake is discounting too heavily. Depending on your industry, a 10% discount may actually be quite attractive, Quelch suggests. And avoid the sledgehammer approach of slashing prices across the board. Instead, trim prices on specific products or services—those that are slow-moving or have higher margins.

The key is to dish out deals without purging your profits. Here are six survival-mode strategies from pricing experts and the entrepreneurs who are making them work. …read more at An Expert’s Guide to Discounting – BusinessWeek, published 3 April 2009.

Flickr photo credit: quinn.anya

By |2012-01-05T06:40:41+01:00April 27, 2009|Administration & Finance, Blog|0 Comments

Sweet Returns

An upscale pastry store thrives by finding new markets

As the economy began to deteriorate in early 2008, a few things became clear to Gary Gottenbusch, owner of Servatii Pastry Shop & Deli Inc. in Cincinnati: Customers were purchasing smaller items in an effort to be frugal, and soaring prices for flour and other commodities were threatening to eat into his profits.

A trained baker whose family has been in the bakery business for decades, Mr. Gottenbusch knew the danger the situation posed to his small business, which sells upscale European cakes like Vienna tortes, along with more common fare such as cinnamon bread, at 10 retail locations in and around Cincinnati.

“My overhead was totally fixed, and I knew if I lost my sales, I would lose the profitability,” says the 44-year-old Mr. Gottenbusch. “It was time to be aggressive in getting more volume.”

Chef David Burke is known for his creative cuisine. Now he’s using that same creative approach to weather a downturn in dining out. He talks with WSJ’s Beckey Bright about his strategy.

So, instead of hunkering down and hoping the economic downturn would be short-lived, Mr. Gottenbusch reinvented his business. With the help of the Manufacturing Extension Partnership, a program partially funded by the Department of Commerce and designed to give small firms access to manufacturing specialists and other advisers, Mr. Gottenbusch looked for new customers in unusual places, created unique products to drive store traffic, joined a purchasing association to keep costs in check and took advantage of the real-estate slump to scoop up a new store location on the cheap.

The result: Servatii not only survived last year, it thrived, with sales rising 15% to $8.5 million. …read more at Sweet Returns – Wall Street Journal, published 23 April 2009.

Photo credit: servatiipastryshop.com

By |2012-01-05T06:58:54+01:00April 27, 2009|Blog, Marketing|0 Comments

How to Finance a Business Start-Up

Q: My son has a sure-fire business idea that’s gonna make us rich. Who do we see to get $100,000?

A: I was asked this question by a very serious forty-something father with his teen-something son in tow at a business opportunity fair not all that long ago.

I was tempted say that if I knew someone with that kind of money burning holes in his or her pockets, would I be standing there talking to them? However, my answer was the one any prospective entrepreneur will hear when asking for money: “Let’s see your business plan.”

Even if your business is to be an in-home affair and you’re the only employee, you need to be able to answer two questions before any lender or investor will write you a check:

  1. What will it cost?
  2. Who’s going to buy it?

These are the questions that a business plan answers. Step one is …read more at How to finance a business start-up – Examiner.com, published 19 April 2009.

Flickr photo credit: YTK23

By |2012-01-05T06:40:42+01:00April 20, 2009|Administration & Finance, Blog|0 Comments
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