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

Show Me Your Price List

Pricing… you can’t be a professional photographer for very long without becoming embroiled in the subject of how to price your work (well, you could, I suppose, but you would never make any money). Then there is the question of, not only what prices to charge, but also how to make your clients aware of your price list without them either running away or thinking you are trying to pressure-sell them.

Price Lists! Get ’em Here!

In the time that I’ve been working as a professional photographer, I’ve personally tried different methods of communicating my prices to clients and potential clients, with varying degrees of success. These include the usual suspects:

  • Printed pamphlet
  • Combined price list and brochure
  • Web site page
  • By email

However, the problem I found with these methods was that sales just didn’t seem to be where I wanted them to be. I would hand out price lists to prospects who requested them, count the number of web hits to my price list page, or email my list to anyone who asked for it – yet the prospects disappeared as quickly as they came, like ghosts. Unless these people were simply professional price list collectors, it was a complete mystery to me, and it doesn’t take too much of that to think to yourself, “my prices must be too high.“

The (Second) Guessing Game

Looking at my price list, and thinking about the lack of returning prospects, I really did start to imagine that my prices were too high – so I made the terrible mistake of lowering them and trying again. Yes, you guessed it – I got just the same result. So, we get caught up in a terrible cycle of continually fiddling with the prices. Up and down like yo-yo’s they go!

Does any of this sound familiar to you? Are you stuck in that no-man’s land of trying to second-guess your prospects to discover what you think they would pay, rather than what you think they should pay?

Well, you’re not alone – just about every photographer I know has been through this painful process. But, there is an answer… read more at Show Me Your Price List – Zenologue, published 22 January 2009.

Flickr photo credit: Burnt Pixel

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

Recession Pricing Strategies – How Low Can You Really Go?

Tempted to cut prices? You’re not alone. With slumping sales, many businesses have been quick to offer discounts. “Cutting prices is by far the easiest marketing technique you can use,” says Frank Luby, a partner in Simon-Kucher & Partners, a pricing and marketing consultancy. But price cuts raise some tough questions: Will deep discounts cheapen your brand? Once you cut prices, can you raise them again? How do you deal with narrower margins? Says Luby: “I try to get my clients to think about where they want to be as a brand when things turn around.”

Here are three companies that made big pricing changes and the results of those decisions.

Wooing Recessionistas

Jeremy Shepherd started to get concerned last summer. The founder of PearlParadise.com, an online retailer in Los Angeles, Shepherd noticed that sales of high-end pearl necklaces were slipping, and he worried that might foreshadow a dismal holiday season. The company relies on sales of $1,000 to $5,000 pearl necklaces during the crucial end-of-year months, which typically account for about 40 percent of annual sales. But though Web traffic was up, many customers were favoring jewelry priced well under $1,000.

Instead of promoting his higher-priced items, Shepherd decided to boost sales by appealing to his customers’ thriftiness. He created a “luxury for less” campaign and priced his strands of Tahitian pearls, which usually sell for $500 to $700, at $300 each. Then Shepherd spent $75,000 to promote the sale. He also revamped his website, placing lower-cost items on the home page.

Orders began to pick up. …read more at Recession Pricing Strategies – How Low Can You Really Go? – at Inc.com, published 1 March 2009.

Flickr photo credit: Harpersbizarre

By |2012-01-05T06:58:54+01:00March 30, 2009|Blog, Marketing|0 Comments
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