Real life business doesn’t of course have moments like this. Radical pricing decisions are not madeon the back of a few ideas tossed around in a staff meeting and in any case how much power doesany one firm have over the prices they can charge? You charge what the market will bear most of thetime while trying to make a profit and stay competitive. But let’s just stop and think about pricingfor a minute because I think it is an area where businesses should be prepared to explore their optionsand use their imaginations more than they do.

When your customers aren’t buying you cut your prices, right?

We’ve just come through or may be about to emerge from a recession who’s defining feature was acollapse in demand across the board. But why?. It’s not you, your service or your products that havechanged. It’s not a shift in public tastes or increasing foreign competition. No one was complainingabout prices before the recession. The problem was, or is, a general collapse in demand which tracesits origins back to a credit crunch and a burst housing market bubble. This suggests that cutting prices alone is unlikely to make much difference and may do more harm than good:-Most of the fall in demand is not from customers having less money to spend it’s becausethey can’t get credit, have lost their job or are economically fearful and thus lack theconfidence to spend. A price cut doesn’t really address any of these problems.-A price cut may actually send out the wrong signals like “postpone your purchase and priceswill fall even further” or “you are right to lack confidence because we obviously do”-Some of the factors weighing down demand could be very transient but a loss of premiumstatus is usually permanent and there is nothing like continual and persistent discounting for eroding a brand’s image.

So you just let the recession happen?

Arguing against wholesale price cuts is not an argument for maintaining the status quo. There are arange of pricing policy changes that can be considered which are actually more relevant to theeconomic situation:-If possible, use your size and credit-rating to assist your customers with financing-Rather than “invest” money in price cuts, invest it in product or service enhancements

Raising prices in a recession and other

crazy / smart

ideas

There’s a recession on and your firm’s salesare on the slide. The boss calls a staff meeting and asks for your ideas. You suggesta price rise and the room falls silent. Are youan idiot, a crazy person or might you just bethe genius that saves the day?

-Offer guarantees, servicing, support at no extra charge that build customer confidence andsupport for the brand-Simplify your prices to make them easier to understand and accept-Make a statement of confidence such as a product launch or marketing campaign to showyour business is positive-Make your product more affordable by unbundling or repackaging it instead of cutting pricese.g. a hotel with multiple leisure facilities can maintain the same overall rates but slice anddice packages to suit all budgets-Make unsolicited free or courtesy offers to existing customers to ensure their loyalty

But actually raising your prices, you’re kidding?

Raising prices should very much be on your agenda during your pricing review. Consider thefollowing:

•

If the recession has put your business’ cashflows and profitability under pressure, you have to protect margins not sales across the product range as a whole. This will almost certainlyinvolve cost cutting and possibly jettisoning some low margin products but it may alsorequire exploiting your position in areas where you are strong to increase prices and margins.What is more likely to succeed: shrinking your revenues with wholesale price cuts or pruningyour product or service offering to concentrate on lines where you can justify maintaining or raising prices?

•

Can you replicate the airlines’ First Class, Club and Economy (market segmentation) model?By offering a stripped-down, no frills version of your product alongside your existing productand an enhanced, premium, prestige option you may able to increase prices of the latter morethan you cut those of the former.

•

Is now the time to concentrate your efforts on the premium or luxury end of the market? Oneresponse to the recession would be to eliminate any ordinary or subpar products or servicesfrom your range and raise the quality and prices of those that remain. It is said that affordableluxuries like cosmetics do well in the recession as people seek a psychological lift instraitened times.

•

During the boom years your business may have adopted some rather lazy practices and under- priced certain services or given them away. For example a lot of professionals give awayadvice to “clients” who may have paid them once in the past but have no intention of doing soagain. Many intermediaries perform services that are not strictly required for their agencyroles. Builders and tradesmen are often called back to their customers long after the job has been completed and not because of any fault with their work. If such extras are going tocontinue to take up time they should be charged for.

Conclusion

– whatever works for you

There are no right answers on pricing only what works for a particular business in particular sector ata certain time. My intention here, by discussing some approaches that seem counter-intuitive, is to provoke business owners and managers into (a) reviewing their strategies in the first place, and (2)not necessarily doing the obvious when they do. If you do come up with a revised pricing model, or decide to stick with the existing one, make sure you have considered it in terms of: