Why Slashing Your Prices is Just Wrong

The economy sucks. Christmas will devastate retail sales. Businesses are cutting their marketing budgets (super stupid) and, in some instances, not hiring consultants. The natural reaction is to cut costs (always smart to cut non-producing expenses) and to slash your prices--DON'T!

Now is not the time to reduce your revenues; it is the time to stand up and stand out. Be the business that gets noticed and gets known for offering value at fair prices. In fact, on some offerings be creative and add value at increased prices. Here's a good example of being smart instead of scared.

Last night (Tuesday) on CNBC, the CEO of Liz Claiborne said that unlike his competitors his stores would not be offering huge discounts on everything on the shelves. Instead, they plan to discount customer's purchases after they spend $250 in a store. That's creative, that's smart, and that's sending a message that says: "We offer great quality at a good price and we care enough about you to offer you something extra."

Today, I met with a sales executive at a new shredding company. (Yes, they shred documents.) The President and CEO wants to sell price by undercutting the competition by 10%. I asked what a typical contract between client and company looks like. (Clients are banks, insurance companies, financial institutions and such.) He laughed and said: "No contracts. A verbal agreement that says all that's necessary for either party to dump the other is 30-days notice." My recommendation: Be different and offer a menu of prices based on service. For example:

• The standard 30-day notice policy at no discount under competitors' prices.

• Offer a 6-month contract with a 5% discount.

• A 12-month contract guarantees a 10% discount.

• A two-year contract grants a 15% discount.

In this example, by thinking differently and offering value, we build in long-term commitment wherein we have a chance to create great customer experiences, thereby. building customer loyalty. In addition, we grow revenues and margins that we can depend upon.

In my marketing and communications firm, we plan to maintain our hourly rates but increase both our retainer fees and our project-based fees. However, our retainer fees will feature no hourly limits and our project-based fees will included a better guarantee. Our current clients on retaine won't be affected in 2009, as a way to honor their loyalty and say thank you.

Here are some other things we can do instead of slashing prices:

• Offer loyalty programs with consumer choices. According to Wharton, consumers love them but sometimes don't like the restrictions and the lack of choices regarding spending their rewards.
• Offer first month free on a one-year retainer contract, if you are a consultant or you offer professional services. Call it a getting to know each other time. (Not applicable to those charging only by the hour.)
• Amp up your guaranty. If you don't offer a guaranty (or no questions-asked return policy), start offering one.
• Enhance customer experience by training employees to treat every customer as a VIP and hold them responsible and accountable.
• Open wide all channels of communications and give your clients and customers a voice. And listen. And respond.

Here's the bottom line: Some business, perhaps many, are going under. Those cutting prices cannot prevent that from happening using a slash and burn strategy. If they have serious cash and credit problems today, slashing prices won't improve their situation. This economic downturn looks like a long one. Therefore, we need a long-term plan. I believe growing our businesses by increasing our marketing and communications and enhancing our clients' and customers' experiences by offering great value, quality services and products constitutes a smarter and more prosperous approach.

Questions: How are you approaching the economic downturn? Cutting costs? Cutting prices? Adding value? If you are a consultant, what are you advising?

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