During any financial crisis, you may have a tendency to try to cut your prices to the bone. This could have a very short-term effect on cash flow, but it may hurt you in the future. When you reduce prices so much that people feel you’re desperate, the purchasers who buy your products or services will never look at you the same again. They will expect you to either go out of business or just hang on by a thread. They will worry about after-sale assistance and returns, and they may not purchase gift cards. This strategy could cause them to shy away from any products that need future service or replacement parts because they’re afraid you won’t be there to help them. They might never even consider your regular
price again and always expect or wait for the deep discount. And they might be hit-and-run customers who have no loyalty to your company and will go elsewhere to spend the rest of their money.
It’s okay to have some special sales and reduced prices as part of your marketing strategy, but always have a deadline when the sale will end. Or use the powerful phrase “While Supplies Last” so customers know that when the product is gone, the sale is over. Keep sales brief and customers guessing when the next one (if any) will be held. Then they will buy at your regular price, which has more profit in it.
Large companies have what they call loss leaders, which are commodity products sold at or below their actual cost, but a small business shouldn’t do this unless they plan to discontinue the item. You need some profit to pay your expenses, and you can’t always make it up on other items. The old idea of making it up on volume won’t work very well for smaller businesses, either. Transportation, storage, and sales costs will eat up any profits you make. If you’re in any type of financial crisis, you must have some profit in your cash flow to pay urgent bills.
Never get into a discount war with any business, large or small. There are no winners in a discount war, and any publicity you get will take time to turn into future profits. If you’re up against a bigbox store, they won’t let you win, and they can even take losses on the products. Your business will be seen as a loser in customers’ minds. If you don’t participate and you sell the same item at your regular price, you’ll still get some business from loyal customers. But if you try to deep-discount and risk losses, you’ll have to sell 20 times as much to achieve the same total profit—and you still won’t beat out the big-box store.
You might consider adding a special free service rather than trying to deep-discount to fight a low-price competitor. Free delivery, free assembly, gift-wrapping, or 800 hotline availability can go a long way for some buyers. Create the feeling that your regular price has a higher value tied to it, and some buyers will see it.