Pricing: Hold Steady

Pricing: Hold Steady

As tempting as it may be to cut prices during a downturn, hang on. Doing so may temporarily boost business,but it can spell trouble in the long run, particularly if you get caught in a price war. "Dropping prices during a downturn is almost always the wrong thing to do because it undermines your value proposition," says Reed Holden, founder of pricing consultant Holden Advisors, based in Concord, Mass. "When the market turns around, you'll be stuck with more price-sensitive salespeople and customers and less profit."

Are competitors already dropping their prices? Instead of following, consider adding options for your customers that don't cost your company much overhead but justify your current pricing structure, says Frank Luby, a partner at pricing consultant Simon Kucher & Partners in Cambridge, Mass. "The goal in a recession is to maintain as much pricing power in the relationship as you can," says Luby. If your customer service line is open from 9 to 5, for example, try keeping it open a few more hours. Or extend the length of your warranties or offer more convenient delivery times than the competition.

Or try selling alternatives to your existing line. Put together different packages of products and services that you can sell at lower prices. In addition to your customary 24-hour maintenance package, say, offer a lower-priced version that operates only during business hours. That allows you to maintain your premium pricing while still driving enough business to keep you afloat, says Holden. Even if customers flock to the lower-cost products for a time, your brand will emerge untarnished when the economy rebounds.

Back to BWSmallBiz February/March 2008 Table of Contents

    Before it's here, it's on the Bloomberg Terminal.