If being the “low-cost leader” is your desired business brand (more on this in a moment), then deep discounts can work in your favor if you have the margins to sustain them! Cons of Cutting Prices This will give you a competitive edge, and expose more people to your business. With lower prices than your competitors, you may be able to attract a larger majority of customers in your area. Similarly, if you have inventory that you are “stuck” with, cutting prices on those products will definitely get them sold. Moves New or Unwanted ProductsĬutting prices helps introduce new products to a bigger audience. Short-term discounts create buzz (witness fast food deals) and therefore improve cash flow. Needless to say, a tried-and-true way to get an infusion of cash is to cut prices and have a sale. But as a way to get a lot of potential customers to learn of your business, and to get them in the door (so to speak), discounting is tough to beat. Jeff Bezos’ strategy was to be the low-cost leader and thereby create a name, and a broad customer base, for his then-nascent business.Īfter the world learned of Amazon, it began to concentrate more on products and strategies that created a profit. In fact, that is why it is often said that “sale” and “free” are the most powerful words in advertising.įor many years, Amazon famously did not make a profit. Gets People in the DoorĪs indicated, who doesn’t love a good discount? We all do.
Yes, having a price-cutting campaign can definitely generate quick sales, but the benefits can be even greater than that. Let’s look at those so that we can better see the ways to do it right. There are pros and cons to the strategy as well. Given that, there are smart ways and dumb ways to cut prices. It’s equally true that, as the Harvard Business Review once pointed out, “a small business is not a little big business.” Walmart, Amazon, and fast food joints like McDonald's, have buying power and get wholesale discounts that small businesses can never match, no matter how popular the product or how clever a price-reduction strategy is employed.Īnd yet, it is also a fact that competition demands that small businesses be cost-conscious. While discounts and lower prices can indeed be great for both getting attention and getting people in the door-just look at Amazon, Costco, and Walmart-the danger is that they end up also cutting into your margins and potentially ruining your brand. If you don’t do it right, it’s not only not a competitive advantage, but it's also potentially a big mistake (and one that can cost you a lot more than wasting tens of thousands on a billboard). That said, you need to be smart when employing the strategy of aggressive price-cutting. People love a good deal, love spending less, and that is why a price reduction does in fact lead to more sales. In the process, although you will be getting less profit on each individual sale, you make up for it in increased overall sales. It’s simple economics: Offer consumers a great deal-good products at reduced prices-and they will flock to the deal.Ī reduction in price is simply that-you reduce the amount you charge for something. Lower prices lead to more sales, a lot more sales. My dad once owned a chain of 20 carpet stores in Southern California but sold them ALL in favor of one single, huge carpet warehouse that specialized in low prices.īecause he made more money with that one store.
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