Recession Pricing Do's and Don'ts
by Reed Holden and Mark Burton
Summary
Recessions typically spur a rash of price-cutting, but for a business to thrive in spite of a bad economy, it requires a more comprehensive strategy.
Pricing during an economic downturn or recession is tricky. Too often, companies simply cut prices to attract more sales. The right pricing, however, can help a company compete and even thrive during difficult economic times. Here are some pricing do's and don'ts for a recession:
DO:
• Define the value you offer to your customers. Any knowledge of the value you deliver to your customers gives you greater control over, and confidence in, your pricing. Interview your customers to find out how they view your products and services.
• Create a range of low- to high-value offerings. Bundle your products and services--and establish price accordingly--which enables you to appease both cost-conscious and value-conscious customers without cutting prices.
• Control company costs and reduce inefficiencies. Streamlining your company's processes and expenses is good for business in any economy. Reducing prices to generate more sales will not improve your business in the long term.
• Invest in innovation to offer something unique. Funnel funds into R&D so you have new products and services that give you negotiating flexibility with customers and sales growth. Innovation gives you an edge when customers are seeking something new to lift up their own financial prospects during an economic downturn or when coming out of one.
DON'T:
• Discount your products or services in order to compete. Getting into a price war with your competitors--without adjusting the value of the product or service--will just send you and your competition swirling into a downward pricing death spiral where no one wins.
• Reduce prices on your high-value products and services. During a recession, a better strategy is to keep high-value products priced appropriately, but focus on selling more low-value products and services.
• Play poker with price-driven customers. When cost-driven customers threaten to take their business elsewhere, either: (1) confidently point out the unique value your product and service offers, which justifies the price you charge, or (2) let the customer take his business and badgering to your competitor instead.
Reed Holden, DBA, and Mark Burton are leading pricing gurus and cofounders of Holden Advisors (holdenadvisors.com), a consultancy that works with business-to-business firms to design and implement value-driven pricing strategies that increase profitability in highly competitive markets. They are coauthors of Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table
(John Wiley & Sons, 2008).