Why businesses should stop cutting their prices

Price cuts are not the only way to get ahead, and, as leading sales expert Andy Preston explains, if you win a customer on price, you are likely to lose a customer on price.

It’s always interesting around this time of year that most business choose to cut their prices as a way of helping them win business over their competition.  Let’s face it – price cutting is a tactic that is often used to try and win more customers, particularly just over summer, when business are trying to encourage more customers. But just because it’s often used, does’t mean that it’s the best tactic or even necessarily a good one.

The challenge is, it has been a good tactic in the past. The problem is, the buying public are now more savvy and streetwise to those sort of techniques. They know that you often hold and advertise a sale with the purpose of increasing footfall in your business and that you want them to be attracted into your restaurant by the sales, but then purchase non-sale items as well, or instead of the sales items – therefore increasing your profits.

The problem is, the buying public are more than aware of this sort of tactic, and have started to change their behaviour over the last 12 months or so. Business owners I have been talking to have noticed that people are tending more and more only to buy when there is a sale on, and not make purchases at normal prices as well, such as having a free jug of water with their 50 per cent discounted meal.

Now that would normally have been fine, however because of price wars between rival businesses, some have taken the price war a little too far and actually priced the sale items at around cost price or less, because they’re having to do more and more to attract people into their restaurant.

Can you see how this might cause a problem? If customers are only coming into the business to buy the sale items, which are at cost price or less, the margins and profits for the business are going to be severely hit.

And that’s all a consequence of the sale tactic being overused, and retailers having to reduce prices even further to have any kind of impact. So if that’s happening right now, what can we do about it and what alternatives do we have?

Option 1 – Creating packages

If we’re not going to go down the sale route, how about putting together some packages?  It’s a proven retail fact that when you put a set of related items together in a package people will spend more.

The problem is, most businesses don’t bother to do this, or at best do it when the customer has already booked. If you do it before that process even starts, you can get the customer to view the whole package as one item and therefore perceive it as better value for money.

And the results for you? Higher average order value, higher profits and everyone’s happy. So have a think right now, what products or services can you put together as a package that will increase the amount your customers spend on each purchase?

Option 2 – Think about customer problems

This strategy is a little different than is typically used, but therefore can give you a massive advantage over your competition if used well. Instead of thinking what products you have and how to sell them to customers, instead do the exact opposite and think about the problems that your customers might have, related to the products you’re selling.

Particularly in a tough market, people will buy products or services that they view as more essential rather than just a nice to have. If they’re having some major problems or headaches, if you can position your product as solving, or helping to solve those problems, you’ve got a huge advantage and are far more likely to get those customers to buy from you, and also pay higher prices.

Option 3 – Targeted promotion

Following on from option 2 above, you can then target your marketing, promotion and sales activity towards engaging potential customers that are experiencing the problems you have identified in option 2 above. Rather than just blanket advertising or promotion to everybody, you have an opportunity to make it more targeted – thereby increasing the likelihood of people relating to the things mentioned in your promotion, and more likely to take action because of it.

In summary, make sure you take advantage of the tips mentioned above to sell better than your competition, and don’t get caught in a price war. Defend your margins, retain your profits and look forward to a successful 2014.

Further reading on the dangers of price cutting

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