Our research suggests that businesses across the South West are planning to review pricing as a means of countering the effects of the recession. Our advice: think twice, keeping in mind the long-term view.
Businesses across the South West are looking to pricing reviews as a means of countering the effects of the recession. Early findings from Business Link’s recent economic downturn survey show that 62 per cent of respondents consider ‘reduced sales’ as their most significant business challenge. 53 per cent are planning to review pricing, representing the number one action being taken to counter falling sales.
Adjusting pricing during a recession can be a strategically robust move, or a big mistake, depending on your unique business situation and competitive context. In general, pricing decisions should not be viewed solely as a quick-fix solution to dwindling sales. Moreover, they should be considered as part of a longer-term strategy.
This does not mean that pricing cannot be used as a means of survival, merely that the longer-term view must be considered in order to avoid or anticipate future pitfalls.
Such pitfalls include the danger of a brand, product or service being devalued by price cuts. When spending power returns, spoiled consumers – who are used to lower prices – may turn away from a brand if prices are increased. Thus, the long-term financial health of an entire company could be devalued by a knee-jerk reaction to current tough times. This issue also relates to brand equity; consumers who previously considered you a high-end brand may be put off if you begin offering bargain-bucket deals to attract new customer groups.
That said, a revised pricing strategy could be the very thing that ensures business survival. Or moreover, it could be used as a strategic play to grab market share from competitors. Whatever the intent, be sure to remain conscious of the bigger picture. Ask what your pricing strategy should be now, as well as in a year, two, or three, from now. If you cut prices, how do you intend to go back? These are financial considerations but also marketing-based strategic questions of handling consumers’ reactions to pricing changes.
It is also important to consider in-depth your business’s finances. Cutting prices might spur sales, but will also deliver lower profit margins. How long can a decreased profit margin be sustained, and again, how can you go back in the future? In tandem with a cost-cutting drive you may be able to cut prices to maintain profitability, but of course cost-cutting driven price cuts could devalue your brand as the quality of your product or service falls. However you approach your review, be sure you have a handle on pricing economics by calculating factors such as per-unit production cost, sales, marketing and after-sales costs.
With a long-term view and a decent grasp on your financial and competitive position, you can begin to consider specific and prudent pricing tactics. The options are varied, ranging from temporary price promotions such as short to mid-term sales, online vouchers, bulk-buy discounts or post-sale rebates, to sustainable, permanent price reductions. Or, you may even decide to increase pricing to reach out to higher-value target audiences. Whatever you do: think twice, and do it with an informed, long-term view.
Watch out for next month’s special feature in which we offer top tips for conducting a price review.
More info – Price your product or service
More info – An overview of our pricing guides
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