As a business owner it is a natural instinct to panic and make an immediate change when business gets slow. Often, business owners choose to lower prices in order to bring in more customers quickly however it is important to realize this can actually do more harm than good in the long run. This article will discuss some reasons price cuts are not always the best choice when your company’s revenue is down, as well as some other solutions you may not have considered yet that may bring you better results in the long run instead of just giving away your services for a lower cost. Once you cut your prices, it is more difficult to raise them in the long term.
Blindly Cutting Prices on your Product or Service is a Bad Idea
When a business owner sees that sales are slow, their immediate response is to drop prices on whatever their products or services. I have repeatedly seen business owners try to fix issues by offering one-time mega discounts that go on for months. The business is put in a position where those are then the expected prices and consumers will not purchase from them again, until the prices are back on sale. Once your company is known for offering major discounts a few times a year – it will stick with your company for a very long time and be difficult for consumers to choose to pay full price. Typically, business owners make this uneducated decision rashly without considering the short and long term repercussions and without considering why business has slowed down. There are numerous factors that must be considered before making such a large decision. Cutting prices is a long term business move that can hurt your brand image, cause issues with current clients and increase the boldness of your competition. It is common knowledge that when you lower your prices it usually means your business is failing or something is wrong.
Any business that is experiencing a slowdown in sales or growth typically has many issues that need to be addressed. A price reduction may indeed increase sales, but often at an increased cost. There is no quick fix and cutting prices is usually the worst decision. There are numerous factors to consider but the first and most important is to evaluate what is actually causing the slowdown.
Evaluate Why Business has Slowed Down - 5 things you should consider
There can be numerous things that have caused your business to slow down. There are things that are in your control and things that are totally out of your control. You can however increase your odds of success if you figure out exactly what is causing the business to slow down. Here are five things for you to consider.
1. The Economy - The economy is the easiest excuse for any business owner to blame and most of the time is not the reason your business has slowed down. This is not always the case but business owners typically want to blame everything other than their own choices. With that said, the economy is an important factor to consider. Depending on your product or service, if the economy is not doing well people might not be in the market currently for what you are selling. With that said, a price drop will likely not fix the issue. There is a lot more to it than that but generally speaking this is the first excuse in the book for most business owners and usually never the answer. Evaluate everything before you blame the economy and know that in every economy there are still plenty of people spending money – it is your job to find them.
2. Evaluate your Marketing - How are your marketing efforts compared to last year at the same time? Is your website ranking lower or higher? Are you spending more or less on advertising? What factors have changed in the past year from a marketing perspective? You need to consider all of these factors and the majority of the time marketing issues are the fundamental cause of business slowing down. If your traffic has decreased, it most likely is due to ineffective marketing efforts or possible changes on the search engines. The solution will not be a price drop; there are other ways to deal with situations like that when they arise. As an example, perform a year over year comparison with your Google Analytics account – is traffic up or down? Is engagement up or down? If you need assistance in evaluating your marketing SayWhat Consulting offers an unbiased online marketing audit here.
3. Internal Operational Issues - This is one of those things that are not easy to admit but can be a significant reason why your business has slowed down. Are you having issues with employees, billing, and customer service? Are you late on bills or payments? Are there operational issues that need to be addressed? These are all factors that should be considered if your business has started to slow down. It is important to review this also and compare it to last year? As an example, did you have staff leave that played a role in sales or marketing? The fundamental goal is to compare your business to the previous year and try to figure out what, if anything has changed. It is important to write down and consider all factors – even the factors that seem minor or irrelevant.
4. Online Reputation - Your online reviews play a pivotal role in your success as a business. The most successful businesses use their online reputation to engage with current and potential customers, answer questions, resolve issues, highlight new products and services, market specials, build trust and credibility. Most of your prospective clients are doing research on Google before they decide to buy from you or not. If they find negative information regarding you or your company they might choose not to do business with you or at least hesitate about making that decision. I highly recommend that you fully review your online reputation and compare it to the previous years. If you have a lot of negative reviews, use them as a stepping stool to better your business. Reviews offer real advice from clients on how to better your business - read them and understand them and act on them. More Reputation Management information can be found here.
5. Ask Employees - Going this route can be awkward but it is important for you to ask your employees where they feel the business is lacking either in marketing, sales, operationally or any other issues. The only way for this to be effective is for it to be done anonymously. Despite your reassurances of asking for true honest feedback, every employee knows that what they say will matter long term and you as the business owner will not forget. They do not want to risk saying the wrong thing and it costs them their job in the long term. SayWhat Consulting also offers this service as well. Get honest feedback from your employees.
Evaluate Your Competition and Their Marketing
It is also important to evaluate your competition and see what they are or are not doing. If they are all cutting prices then maybe that is something that will justify your decision in cutting prices. However, it is also something that you can use as a selling point to gain more business if you choose to not cut prices because it shows that you have a stronger company built for long term success. Here are a few things to evaluate when you are looking at your competition.
1. Where are they getting their customers from? There are numerous ways that you can evaluate your competition and how they are getting their clients and also compare how they are marketing themselves.
2. Where do their customers come from on social media? Are they using social media effectively to spread word of mouth about their company? If so, how are they doing it? How much reach does each account have that is promoting them? What kind of content are they posting to spread word of mouth on social media for their company and do you have something similar on yours?
3. How are your competitor’s online reviews? There is value in checking out their online reviews and evaluating how they can impact your business. Just as you evaluate your online reviews it is important to do the same for your competition because it will give you insight on their weaknesses and how you can exploit those weaknesses to increase your business.
4. If they have a website, what kind of content do they have on there and do you need to change anything based on that? This may seem like an obvious one but always use it as a comparison for yourself and evaluate what needs to be changed or added based on what you see on there that isn’t already on yours.
5. Are your competitors getting any local press or media attention that will help them gain more business? Evaluate how much press their business is getting and how much it can help them in terms of increasing their clients. Also, try to figure out how you can do the same.
Overall there are numerous factors in reviewing your competition that you must weigh in order to grow your business. We recommend year over year tracking of all your competition and their marketing efforts. This way you can track their changes and what is and is not working for them. One of my college business professors was a very successful businesswoman who once reminded our class about the importance of understanding your competition. One example that always stuck out to me was McDonalds and Burger King. McDonalds would spend large sums of money in evaluating where they would put a new franchise - Burger King would just add a new franchise wherever McDonald's added a new location.
An analysis of your competition is vital to growing significantly. When you understand your competition and what they are doing right and wrong it puts you in a better position to make highly educated choices based on growing your business. SayWhat Consulting can help you gain an edge over all your competition. Learn more about competitor analysis here.
The immediate tendency of business owners when times get tough is to try to come up with a short term solution like cutting prices on their services and/or products. This is a mistake if you have not considered all options first. Cutting your price will rarely work as a successful long-term strategy. Every small business owner should consider what happens long term before they consider lowering their prices or discounting any of their services or products just because customers are not spending as much at this time. After considering all the factors, we highly suggest running it by a business consultant. The implications in the long term of cutting prices can be devastating to your long term growth. SayWhat Consulting can assist you in all aspects of your business including making educated decisions about long term pricing strategy and gaining new business.
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