Small businesses, just like big multinational conglomerates, have to think about the price of their goods and services. Especially in a nasty downturn like we have seen in 2008. I have been reading up on this issue and while there are differing opinions, I think what I am walking away with is the idea, that a business owner should be wary about dropping prices too precipitously during a downturn.
It is a strange phenomenon, but many consumers tie the value of the product or service to the price. So when you drop the price, you tend to dilute the brand, and in the long run, your business suffers.
In one article I was reading in the Harvard Business Review, "Discounts can be dangerous," the authors admonish business to be "wise and strategic" in offering discounts. Said the authors, "Often, the more consumers pay, the more value they ascribe to a purchase. If you discount prices purely to boost sales, buyers may begin to question that value."
And, apparently, Starbucks in in danger of pricing itself right out of its brand image with it's $1 coffee with unlimited refills idea! (Actually I've been hearing a lot of nasty rumors about Starbucks. It's as if a lot of people think the company has about as much catchet as, say, Burger King. How did that happen?)
So, it seems the objective during a downturn such as this is, improve the quality of your service or product by all means, but think twice about fiddling with prices. In the end, if you decide to reduce prices or offer discounts, maybe you want to be selective about it, and maybe you don't want to do it too drastically.
Remember Caveat Emptor.
3 years ago
