Last October, when the global financial crisis brought Wall Street to its knees and it looked like another Great Depression might be around the corner, I urged readers not to panic and posted a 10-point plan for beating the bailout blues.
Today, the Dow is back above 9,000, Goldman Sachs and J.P. Morgan Chase are minting money, and the housing market seems to be stabilizing in many parts of the country.
Unfortunately, the news is still bleak for small-business owners. Bankruptcies and retail store closings are on the rise, and small businesses are cutting back on employees and overhead in a struggle to survive. And despite the government’s efforts to encourage banks to loan money to small-business borrowers, lenders are still leery of extending credit to startups and early-stage companies that fail even in the best of times.
That’s why the advice I gave last fall–”Don’t cut your prices!”–is starting to sound about as compassionate as “Let them eat cake!” Because, even though price-cutting rarely moves the needle (unless your name is Wal-Mart or Amazon), crushes your already slim profit margins and teaches customers to expect the same low, low prices once the economy rebounds, it’s hard to sit there and do nothing while your competition lures your customers away with 50 percent-off sales.
What’s the solution? If you really feel you have no choice but to cut prices, do it strategically. It’s one thing to offer a discount to existing customers to give them an incentive to come back and spend more money; it’s quite another to offer the deal of the century to prospects who’ve never spent a dollar with your company and may never do so. Even if you decide to offer a freebie or “loss leader” to bring new business in the door, make sure to offer it only to qualified prospects whom you believe will become profitable customers down the road.
The bottom line: Never cut prices in a way that makes your business look desperate. There’s nothing more pathetic than a restaurant with an “all you can eat” sign in the window and not a single diner seated inside.
In business, as in life, appearances have a way of becoming reality. Stay strong, give your best customers a reason to stick around, and your company will live to fight another day.
This entry was posted on Monday, July 27th, 2009 at 8:44 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.One Response to “Time to Cut Prices–Strategically”
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August 1st, 2009 at 2:36 pm
I think these days, if you don’t give the deal of the century, you just can’t compete with the Wal-Marts and Amazons of the world. FAO Shwartz said it couldn’t compete with Wal-Mart because they were buying a Barbie Doll wholesale for something like $17.00. Wal-Mart was selling the doll retail, for $14.00.