Why price cuts don't work in business

As pressure mounts for more and more retailers to slash their prices, leading sales expert Andy Preston is warning other businesses that cutting prices is not the only way to get ahead in the ‘crunch’, and is urging them not to engage in price wars they cannot sustain in the longer term…

It’s always interesting around this time of year that most retailers choose to cut their prices as a way of helping them win business over their competition. What concerns me more though, is how some other businesses in other sectors do the same, thinking that lowering their price is the quick way of winning some new customers. Even more concerning is that some business owners think that lowering their price is the only way of winning some new customers!

Let’s face it – price cutting is a tactic that is often used to try and win more customers, particularly in the run-up to the Christmas period or in January, when retailers are trying to encourage more customers to enter their stores. But just because retailers use it, that doesn’t mean it’s a good tactic for other industries (or even the best tactic for retailers in most cases).

So how does this work for other businesses?

For most other businesses, price-cutting is the fastest way to lost profits! The problem is, it can sometimes be done in ‘panic’, when you’re short on customers, not winning deals or want to have the ‘edge’ over your competition. If the only way you’ve got the ‘edge’ over your competition is price, what does that say about you, your product or service and your company?

You see, ‘lower price’ is an easy thing to compete on, isn’t it? There’s no sales skill required, no work involved, no effort – in fact it’s a very easy option. You can bet your last penny though, that if you’re in a competitive market and you lower your price and start winning business, what are all your competitors going to do? That’s right, drop their prices below yours!!

Now you’re back where you started, but you’re getting less profit and you still haven’t solved your problem! So what do you do now? Drop your prices again and start the whole chain reaction off for a second time? Then a third? Then a fourth? What affect is that going to have on your profits?!

So what are some things we can do to attract more customers, rather than cutting prices, and therefore profits?....

Andy’s Option 1 – Creating ‘Packages’

One way to improve profits is to create ‘packages’ – similar items bundled together to encourage customers to spend more. Think of a suit sold with a shirt and a tie? That’s a good example. A pair of shoes sold with shoe polish? You get the idea.

The problem is, most people don’t bother to do this, or at best do it when the customer has already gone made their purchase! If you do it before that process even starts, you can get the customer to view the whole package as one item and therefore perceive it as better value for money.

And the results for you? Higher average order value, higher profits and everyone’s happy! So have a think right now, what products or services can you put together as a ‘package’ that will increase the amount your customers spend on each purchase?

Andy’s Option 2 – Think About Customer Problems

This strategy is a little different than is typically used, but therefore can give you a massive advantage over your competition if used well! Instead of thinking what products you have and how to sell them to customers, instead do the exact opposite and think about the problems that your customers might have, related to the products you’re selling.

Particularly in a tough market, people will buy products or services that they view as more ’essential’ rather than just a ‘nice to have’. If they’re having some major problems or headaches, if you can position your product as solving (or helping to solve) those problems, you’ve got a huge advantage and are far more likely to get those customers to buy from you, and also pay higher prices!

Andy’s Option 3 – Re-contact Existing Customers

You’ve probably got some customers you haven’t spoken to in a while, and they may only need a phone call to remember you’re there and spur them into a purchasing decision. It wouldn’t hurt to call them, would it?

In addition, I’ve lost count of the times I’ve suggested salespeople or business owners do this, they call up their existing customers – only to find out they’ve bought something they could have got from you, but they didn’t know you sold it!

Think about some of your customers right now – especially those who may also not be aware of everything you sell. Why not give them a call?

Good luck with all your future selling efforts!

About the Author

Andy Preston is a leading expert on Sales and selling for small businesses. You can see more about Andy here. You can also see more about Andy’s bite-sized training for small businesses here.