There may come a time when the market can no longer support your current prices. Sales may be dwindling, and you may see potential customers looking at your products or calling for quotes, but sales and orders don’t result. If you can, ask customers why they’re not buying to see whether they feel your price is too high or they saw the same thing for less elsewhere. Some people will be happy to tell you if you ask in a friendly manner.
This is also the time to sell the benefits of your product or service— better selection, guarantee, service, or delivery than your competitors— but some people will still prefer the lower price.
Have you looked at your price on the products in question to make sure you’re up with the current trends? Some products get better while the price drops at the same time. Look at computers and other electronics—you get much more for less than you did five years ago. Can you reduce any prices to pick up sales and market share while still making a good profit?
Here are some reasons why you might lower prices:
- Supplier cost is less now.
- You’re getting larger quantity discounts.
- You’re offering larger quantity discounts.
- You’ve found a new lower-cost supplier.
- Manufacturing costs have been reduced.
- You’re taking prompt-payment discounts from suppliers.
- Sales have increased, so you can accept a lower profit per item.
- You want to meet competitors’ prices.
- You want to gain more market share.
- Your products are becoming a commodity
- You want to use a product as a loss leader.
- You want to move excessive inventory quickly.
- You’ve downsized your staff.
- You want to increase sales to sell the business.
- Technology has forced prices lower.
- You want to clear out soon-to-be obsolete products.
- You want to use lower prices for an advertising campaign.
- You are outsourcing some work at a lower cost.
Keep in mind that by pricing your products or services too low, you’ll force competitors to react. If they go lower than you, do you want to lower prices again? This can be financially dangerous because no one wins, and it can be even more harmful to your business growth. You don’t want to be lured into prices so low that you don’t make a profit.
If you’re competing against a large company with commodity products, you can follow their lead in pricing, but sell a little higher if you have value-added service. Normally, large outlets have an impersonal sales staff or none at all, and as a small business, you can provide an informed staff.
As a matter of practice, when you’re lowering prices, don’t go below your bottom line and give away the farm. You won’t stay in business very long if you’re selling below your cost.