How to Reduce Price Without Sacrificing Profit or Value

Don’t forget that Wal-Mart‘s primary business model and strategy is operational excellence so that they can maintain the absolutely lowest pricing around.  They are BUILT to do that.  What you may not remember is that many years ago, there was some kind of litigation involved where Wal-Mart was accused of raiding Amazon.com for employees.  You might wonder what Amazon and Wal-Mart have in common?  It’s managing the supply chain.  Amazon and Wal-Mart are perhaps the kings of logistics and supply chain management — and THAT is how you keep prices low without going out of business.

The rest of us are probably running strategies around customer service, customer intimacy, quality or technical superiority.  These strategies are NOT conducive to reducing your prices in an economic downturn.

NEVER. NEVER. NEVER just drop your price without REMOVING something from the offering.

Hey – I’m all for value pricing.  But the physics of business says that if you want to be around tomorrow, you must charge more than what you paid for something.  The economy may be tanking, but that’s still the law on this plane of existence.

This means that you will have to take another look at your offering and your mix and make some adjustments.

Here is my process for re-pricing my offering:

1. You’ll need to have a spreadsheet – doing this on a spreadsheet is much easier and allows you to play what-if scenarios.
2. Create three columns: What’s important, cost and list price
3. Make a list of all the things that are most important to your customers. (ideally you will have this information from actual surveys that you’ve conducted)  Your list needs to be very specific.  For example: 24-hour delivery is a specific attribute that’s important to your customer.
4. Next to each item that’s important, put down what the cost is to deliver that item.
5. Next to the cost, set a list price – which should be a value price.
6. Now you are ready to start creative offers, bundles and special pricing to meet your customers needs.

The key is to work with your existing value and benefit proposition while creating a mix that will appeal to your customers’ price point.

Whatever you do – don’t just drop prices without adjusting value.  That tells your market that the original price you set is too high and they will always try to get more for less.

The key is to really understand what your customer values and create a mix that includes that at their desired price point.  Remove the things you think they want – the don’t want to pay for that.

Author: Ivana Taylor

Name: Ivana Taylor
Email: ivana@thirdforce.net
Site: http://diymarketers.com
About: Ivana Taylor is the publisher of DIYMarketers.com and the President of Third Force a firm that specializes in helping companies find their best customers and be the one they choose – regardless of price. She's an expert and book editor for Small Business Trends and a contributor to AMEX Open Forum.See Authors Posts (255)