Pricing strategy: how to avoid cutting your prices

How low can you go? When you’re in price-driven competition for customers, you may find it’s a game you can’t win. A seller who’s bigger than you are is likely to be able to survive a price war more easily than you can. The bigger seller may be in a position to make up in volume what he/she loses by accepting smaller profit margins. And he may cut costs more easily by demanding price concessions from suppliers.

In any case, cutting your own profit margins to the bone can be dangerous to your financial health. It’s been the beginning of the end for many sellers.

A better strategy may be to differentiate your product from what your competitors are marketing. Show why your product is different and better, why it has extras that your competition doesn’t have, why it can do more. Prove that your value is better and convince your buyers that it’s worth the premium price.

Let your competition scramble for sales by cutting prices. You sell an improved product to customers who want better quality and are willing to pay for it — and maintain decent profit margins for your company. Be careful not to charge too much more than the other guys, or customers may decide your better quality comes at too high a price.

Be prepared to make a strong case for your premium product. You may have to invest in aggressive marketing to get your sales story across.

A word of warning. This strategy isn’t for everyone. There are some markets that are almost totally driven by price. In such markets, you have no choice but to cut prices and cut costs if you want to stay in business.

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“Where did you hear about us?”

If you’re like many bosses of small businesses, you probably take much of your advertising on faith.

That is, you prospect for new business by advertising — in the newspapers, on radio or television, using direct mail or other distribution of promotional materials. But you may not bother to follow up, and learn which is actually bringing in new customers. As a result, you continue to buy under-performing media and promotions, and don’t invest as heavily as you should in the advertising that’s actually bringing in the customers.

To stay current on what works for you and what doesn’t, ask each new customer how he or she learned about you and your company. You’ll soon get a feeling for where to heavy up, and where to cut back.

You may discover that most of your new business comes through word-of-mouth referrals. So don’t be shy about asking existing customers for new business leads. It’s easy. Just say: “Do you know anyone who could benefit by using our product?” You’ll find many customers are eager to help

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Don’t do the small stuff yourself

As the boss, you just may be the most competent, hard-working person in your organization. You can do any job in the place better than anyone else. So you end up doing practically everything yourself.

You want everything done perfectly, and you figure that in the time it takes to teach somebody else to do a job, you could simply do it yourself. You may be right, but you’re simply trading long term efficiency for a short term fix. A dumb idea, if you plan for your company to be around for awhile.

If there’s a lower level job to be done, give it to somebody else to do. If you did it yourself, you’d give it a low priority and push it aside to get the big stuff done. Result: the job may be late, or poorly done, just because you ran out of time, and couldn’t give it your best shot.

But when you, as the boss, give it to an employee, it becomes a high priority for him/her to get it done right, and on time. Maybe you may have done the job better yourself, but now it’s done – and your world moves on.

That’s what employees are for.

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