With Black Friday–Cyber Monday (BFCM) and Cyber Week rapidly approaching, you may be thinking about your pricing structure. You might be planning on some sales to kick off the holiday season. But if you’ve experienced a revenue slump lately, you may also be considering how to strategically lower prices across the board.
[Read more: 7 Ways Your Business Can Get Ready for Black Friday]
Reasons to lower your prices
Lowering your prices may seem counterintuitive to increasing revenue. But business owners can have many good reasons to lower their prices. For instance, if you’ve decided to price your products using a price-skimming strategy, you’ll want to lower your prices after the initial release, riding the wave of early adopters before making your product more accessible at a lower price point.
[Read more: 5 Smart Pricing Strategies to Attract Customers]
You might find yourself in a price war with competitors and, in order to entice customers to your brand, you need to either increase your value or lower your prices.
You may want to increase cash flow and clear inventory by lowering prices on select items.
On the other hand, you may have found less-expensive suppliers and are able to pass some of the cost savings onto your customers in order to help you increase sales and stay competitive.
Whatever your reason, you don’t want to introduce price cuts without a strategic plan.
Run the numbers to determine your new price
Before you slash prices due to competitive pressure or any other reason, make sure you understand your costs, overhead and the value your product delivers. You don’t want to lower prices if it will reduce the perceived value of your product.
In rare cases, you may want to lower your prices beyond the point of profitability. Especially during the holiday season, you may wish to introduce “loss leaders” to drive customers to your website or into your store.
If you want to increase cash flow and are sitting on older inventory, you can hold a clearance sale where products are discounted below your cost.
Create a price-cutting strategy
Next, determine if you want to cut prices permanently or long-term. Will the price cuts be incremental, or will you drop to the new, permanent lower price in one shot? Will price drops occur across your product lines or for only specific offerings?
If you’re using a price-skimming strategy and lowering your prices due to a product’s age, you’ll want to recognize that different products have different timelines for price cuts. Evaluate your competitors and the life cycle of other products in your lines to determine when—and by how much—you can reduce your prices.
Set your new prices
Once you have an idea of exactly how much you can reduce prices, you still have a range of numbers to choose from. Reducing products from an even price (such as $18.00) to an odd price ($16.99) may signal a bigger discount than actually exists. On the other hand, prices ending in .88 may be viewed as even less expensive.
You’ll want to spend some time delving into psychological pricing so you can understand the perceptions your customers may have about your new price.
[Read more: How Should I Price My Product or Service?]
Market the price cut by emphasizing features, not pricing
Once you’ve determined your price-cutting strategy, connect with your marketing team to determine how to convey your new pricing to your customers. Is this a temporary price cut or a long-term change?
When you announce the lower price—unless it’s a temporary sale—focus on emphasizing the product’s features instead of the new price. If you’ve introduced any new features, those should be the centerpiece of your campaign. You don’t want to devalue your product or imply that customers are getting “less” with the price drop. It’s best to gloss over the new price and emphasize the product’s enduring features and benefits.
If you feel a need to put your new pricing “front-and-center,” your campaign could include messaging about affordability and accessibility. That would make the decision more about your company’s values and mission than about lower prices for increased sales and profitability.
Consider rebranding or repackaging
If you feel a price cut would cheapen your brand, consider rebranding instead. Offer a slightly different product with fewer features or a smaller size at a lower price. Several companies have different product offerings for different demographics.
For instance, clothing retailer Gap, Inc. offers the high-end Banana Republic brand, mainstream Gap brand and Old Navy for discount shoppers. Luxury car manufacturer BMW offers its regular line and its M Series for customers who want the ultimate in performance and luxury.
Offer price-matching
If you’re cutting prices to compete with others in your market, there are ways to do so without overtly slashing prices. You can offer price-matching, which shows customers you value their business and their loyalty yet recognize that your prices may be higher than the competition.
Increase your value instead of lowering prices
You can also increase the value you deliver by increasing the product size or features while keeping your price the same. You might consider bundling popular products together—perhaps with one that isn’t selling so well—and offer the bundle at a discount from what people might pay if they purchased each item separately.
Again, it’s all in the marketing message you use. You want customers to feel they are getting the same—or greater—value for a lower price, not that they are paying less because they’re getting less or because your product is inferior to the competition.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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