What?
Is she nuts?
For those of you who have been reading the articles I’ve written during our current economic recession, you indeed may be wondering if I’ve lost my marbles. After all, throughout the recession, I’ve been telling you not to lower prices on your products and services.
Why the change in tune?
Because, during a recession, it’s better to keep your prices consistent rather than lower them and appear as if you are chasing the buck. However, during a recovery (which we are now in), you do want to lower your prices as money starts flowing and people ease into spending again. As consumer confidence grows, so should your business. And what better way to attract new customers than by offering them a smoking economic recovery deal by lowering your prices temporarily?
Standing on the Cusp of Recovery
Today, we stand on the threshold of economic recovery. According to the September 16th issue of The Wall Street Journal, “Federal Reserve Chairman Ben Bernanke said Tuesday that the recession was ‘very likely over,’ as consumers showed some of the first tangible signs of spending again.” As small business owners, it’s now time to move out from under the cloud of fear and stand beside the banner of recovery.
Do you remember the 1983 film Mr. Mom, starring Teri Garr and Michael Keaton? In the film, Jack (Keaton) and Caroline (Garr) are married with three kids and living in the suburbs of Detroit, Michigan, during the 1980s recession. As the movie opens, Jack has just lost his job in the auto industry and Caroline has been hired by an ad agency, forcing Jack to trade roles and become a stay-at-home Mr. Mom.
In the movie, Schooner Tuna has hired the ad agency Caroline works for to help them with their image and sales slump. To do so, Caroline comes up with the unique idea of temporarily lowering the price of Schooner Tuna until after the economic crisis is over. In the movie, you see Howard Humphrey, President of Schooner Tuna, telling the American public:
“All of us here at Schooner Tuna sympathize with all of you hit so hard by these trying economic times. In order to help you, we are reducing the price of Schooner Tuna by 50 cents a can. When this crisis is over, we will go back to our regular prices. Until then, remember, we’re all in this together. Schooner Tuna. The tuna with a heart.”
How to Lower Your Prices with Dignity and Strength:
- Create an esprit de corps.
Don’t set yourself apart from your target market. Find a way to connect with them emotionally and show them you are all in the same boat. Example: We’ve all been through a lot during this recession and have gone through some tough times. - Make sure you use strong wording when lowering your prices.
Don’t be namby-pamby. Let folks know exactly what you are doing in bold, strong language. Example: We’re slashing the price of our services in half! -
Be entirely transparent and upfront about why you are lowing your prices.
Don’t let there be a whiff of anything slightly off about your offer. Let people know exactly why you are lowering prices. Example: We know that many of you have wanted to use our services but found our prices were out of your budget. - Be entirely clear in your call to action.
Don’t apologize for asking them to take action. Tell them exactly what you want them to do and why. Example: Check us out again! We’ve dramatically lowered the price on most of our products. - Tell folks when you will be going back to your regular prices.
Don’t waffle around about when you will return to regular pricing. Tell them what you’ll be doing and when. Example: In six months, when the economic crisis is over, we’ll go back to our regular prices.
Today, you are standing on the launch pad of success. The recession is over. The pendulum has just started its swing toward economic recovery. That means that things are about to take off for you as a small business owner and for the world as a whole. Now is the time to lower your prices-not six months from now. The moves you make while on the cusp of recovery will determine where you’ll be standing one year from today when our economy is stronger and job security higher.
Editor’s Note: this article was previously published at OPENForum.com under the original title: “Begin Your Economic Recovery: Lower Your Prices Now!” It is reprinted here with permission.
I like the psychology behind it. Do you know of any companies that have used this Schooner Tuna-esque strategy successfully?
Susan,
Instead of lowering your prices on your current products or services is there an opportunity to offer a more basic offering instead of slashing the price? I would be interested in your thoughts.
I don’t think this is appropriate advice unless you are reducing your services along with reducing your price.
I have been advising small business owners to raise their prices and will continue to do so.
By lowering your prices, even for a short period of time, you are training your customers to “wait for the sale” (think retail on this one).
I’ve not yet found a small business owner who wants to be a low price leader. And I hope I never do.
Michael Martine
There are better strategies than lowering prices, like creating entry-level products at entry-level price points, then moving customers “up the ladder” through additional sales, cross-sells and up-sells.
Terri Garr’s “Tuna with a heart” campaign would be a disaster in real life. Once you lower prices, it is nearly impossible to raise them again, because your customers have already seen what you’ll settle for. In reality, as soon as Schooner Tuna raised its prices again, their sales would have plummeted.
Up-sells and cross-sells can be discounted because of the bundling effect when combined with a full-priced product. You could offer free shipping or extra service. But lowering prices results in a race to the bottom, from which most businesses will not recover.
I agree with Michael – there are other ways to capture business beyond lowering your prices. That’s taking two steps back and one forward.
I’ll add more to Michael’s suggestions. Offer a loss leader to your main services. Run a three day special on one particular service. Create a new service and promote it, and make sure it ties into another service you have to encourage repeat business.
RedHotFranchises
Wonderful strategy, I thought this was a sarcasm post at first sight, but I truly see the whole essence behind me now and has brought me to a different perspective.
This strategy can certaintly help to turbocharge the economy with a boost
Count me in the strong disagreement camp here. I’ve launched, grown and sold a few small businesses and advised a lot of others. Any time your competitive strategy focuses on price reduction, you’re setting in motion a value-reduction spiral that, as Michael and James shared above, is very difficult to reset…even if you claim it’s temporary.
Your consumers will quickly adapt to and expect the lower price. And, your competitors will also very likely race to match or cut below you, leaving you “wanting” to raise prices back up at the end of your stated trial period, but unable to, because you’re terrified the market won’t follow you and you’ll lose out. This ends up locking you into a price reduction death spiral that’s near impossible to extract yourself from. Bad, bad move!
In the deepest pain of recession, all rules are suspended, nobody I know is smart enough to know what will work or not. Once we’re back in a recovery, though, people have money to spend but they’re looking for value.
Your job is not to undercut your business by launching into a price cutting spiral at that point, it’s to DEMONSTRATE and DEFINE value like never before. That may mean bundling more into the product or service you offer, better positioning it so that people have more clarity about the comparative value and doing any number of the things Michael and James suggested above and hundreds of other things.
Because, competing in a recovering is not about winning the bottom fishing war, it’s about winning the value war. You do that not by training your customers to define your product or service a fungible, define value as price and gutting your margin. You do it by being more remarkable, solving problems better, doing what nobody else will do and making crystal clear your points of differentiation.
Bob Zeitlinger
I think the idea of lowering prices is worth a try for many businesses. Consider it a “marketing” expense. Depending on the service, you may want to lower prices for three months, and truly analyze how many customers stay with you. If you pick up 20 customers and five stay with you, a business owner can calculate the lost profits via discounting, and see if they are made up by those five customers over time. (and how long you need to keep those five customers in order to make back the profit.) I wholeheartedly agree that no discounting can be done without telling your new clients/customers that prices will go back up in XX months.
JohnH
I can’t think of a better way to lose your current customers than to let them find out you slashed your prices for new customers. Of course, you could just cut prices for everyone and go straight out of business. Gotta agree with commenters like Denise and Michael that if you’re going to try and pull this one off, package it as a different product with fewer bells and whistles. Even so, run the numbers first and remember that dropping the price doesn’t always result in a slew of new customers.
No don’t lower your prices, that was what you should have done the last few years.
This is the year to start raising your prices as your competors are already out of business and you need more revenue to survive.
Anita Campbell
I’m not in favor of lowering prices as a general rule. Most small businesses are underpriced as it is. 🙂
But I wonder if the reaction here is more about the choice of wording (“lower prices”).
If something were positioned as a “special limited time offer” I think it could work without damaging your existing base.
A “20% off between now and April 30, 2010 for any new service, using our Let’s-Kick-the-Recession-Once-and-for-All-Discount” is the type of thing businesses do all the time.
Michael Martine
Anita, perhaps you are right, but as a writer, my reaction to that is, “Well, say what you mean, then.” 🙂
What business owners should be working on in a recovery is a way to make a more compelling offer for their product and services. Saying that you are slashing prices in bold, strong language is the same boring technique that most people tune out because they hear it every day. Even to Anita’s point, wording as a limited time offer sounds better but it’s still by no means compelling. The first point of the article was to connect emotionally with your clientele. I would suggest looking for ways to engage clients through your actions and also ways to create the messaging around this idea through your sales copy. If you aren’t sure how to do this, hire someone who does.
There are only two buying questions (well, three, but the third one “Are you my best friend?” is one you can’t compete with):
1) How much does it cost?
2) Can you do it?
The cost question puts you in direct competition with everyone else out there that has nothing unique to offer other than “we’re cheaper than the next guy”. Walmart can afford to play that game because their distribution costs are actually 7% lower than Target and other competitors – you don’t have the volume to play that game.
The “can you do it?” question focuses on why you are unique in your niche. Once you start playing they price game you have lost any credibility for being unique. Apple Computer doesn’t have sales because no one else can give you what they do. What do the rest of laptops sell? – “We’re cheaper than Apple.” Good luck with that.
Doing something shocking is a good marketing technique. Lowering your price isn’t the right one unless you’ve decided you’re going to compete with Walmart, in which case you will go out of business because they win the price game every time. Play the unique quality game instead and you can name your price.