If you’re experiencing pressure to drop your prices, think again! It’s the fastest way to lower profits, so read on to find out how you can keep your prices, and your customer base, intact…

Resisting pricing pressure is surely one of the most important ways to protect your business, especially during a downturn. Conversely, chasing the market downwards is the fastest way to drop profits and leave your business unprepared for economic recovery.

You may think that’s all very well in principle, but the reality is that your competitors are undercutting you and your customers are demanding a discount. In this article we’ll take you through the basics of maintaining a price strategy. Next month we’ll take it a step further with strategies to increase prices (yes honestly!). In the meantime, here are 4 ways to stabilise your prices, and profit margins:

1. Differentiate

Make sure you know exactly what customers want, and what they value most. This may seem obvious, but has the market changed since you last set your pricing strategy? List and rank your customers’ priorities, and then compare them with your product (used in this article to also imply service).

If they are not the same, you ought to consider developing the product further to a point where you are in sync with what your customers want. Otherwise price will becomes your main differentiator, making the product more of a commodity than a sought after purchase.

Once you are confident that your product matches customer demand, be sure to remind them what you are offering so they won’t question your costs. Focus on these attributes in your marketing material and communications – using every opportunity to stress the benefits of your proposition.

2. Don’t price as like-for-like

Avoid direct comparisons with competitors by offering a different way of pricing and/or delivering your product. For example, different payment schedules or re-classified services will refocus customers’ attention on the quality and importance of your product, rather than just the cost.

Another strategy to prevent like-for-like price comparisons is to redefine the standard of what represents ‘good’ in your industry or category. For example, by writing and publicising a white paper which sets out what customers should be looking for, you can effectively move the conversation from cost to quality.

3. Target higher level management

More senior personnel in a company have a bigger picture view of procurement, and so are less likely to be focused so much on price. They will be looking at how the product adds value to the organisation, and how it delivers in terms of efficiency and reliability, etc – factors that have a significant bearing on the customer but which may not be considered by a more junior staff member.

4. Get creative

Your pricing strategy could be another way to differentiate your proposition and inspire customer confidence. This is simpler to achieve with a service than a product, however as service is now an integral part of every business, there are parallels which you can base ideas on for any industry.

For example, a company is much more likely to test you if your core service base price is relatively low. If this amount covers your costs, why not take a more creative approach to the profit element– suggest that the client pays you a completion bonus based on the value they think you’ve delivered, giving them an idea of what companies usually pay, but making it their decision. They’ll likely feel more in control and more satisfied with the arrangement.

Another idea could be to make the profit element of the service performance based, demonstrating your flexibility and confidence without jeopardising financial security.

As with all the pricing strategies, we suggest you trial ideas with new clients first, as their expectations aren’t yet set and ideas that you later may reject won’t affect your core client base. However, the key point is that price is one of the main strategic decisions that every business must make – and monitor – to maximise profits and ensure long term survival and growth.

Next month we’ll suggest ways in which you can actively increase prices, without adversely affecting profitability. For more information about pricing strategies, contact our Business Advisory team on 01245 495588