The way you respond to market changes can make or break your business.
If there’s one business strategy that entrepreneurs tend to avoid, it’s cutting prices. Other than the regular sales that happen in the retail sector, most businesses come up with a competitive price for their goods or services and stick with it. Continually changing fees can confuse customers and cause problems with cash flows.
Yet, in today’s environment, where the COVID-19 crisis is forcing companies to rethink all aspects of their business, many people are considering whether they should reduce their prices and if that might attract more customers, even though there’s not a lot of buying going on right now.
“It’s hard for businesses,” says Robert Fisher, a business professor and chair of the University of Alberta’s business school. “Under normal circumstances, you might cut prices when you have excessive supply or need new customers, but neither reason applies now.”
In today’s environment, companies must attempt to develop pricing that will retain customers, but also be cognizant of their changing financial situations. With more than 4 million Canadians having applied for the Canada Emergency Response Benefit and job losses reaching all-time highs, it’s a new world for customers and businesses alike. “You have to be attuned to changes in the economy,” says Fisher. “The normal rules don’t apply.”
So how should you approach pricing in a pandemic? We explain below.
Track Consumer Trends
Before you make any decisions, read consumer trend reports, which are especially telling right now. A recent Nielsen study, for example, found that during the pandemic people are purchasing more products that focus on wellness or health. They’re also buying more non-perishable food products that they can keep on their shelves. Not surprisingly, they also found that people are doing a lot more of their shopping online. Most sectors do have consumer trend reports you can either find online for free or purchase. Once you have an idea of how your customers may be responding to COVID-19, then you can better determine how to set your price.
Consider Adding More Value
A little creativity can go a long way, says Fisher. Rather than slash prices, many companies are first trying to add value to existing pricing structures. Some retailers are enticing customers by adding hard-to-find toilet paper to their shoppers’ purchases; restaurants are delivering local beers to people’s homes; service businesses are organizing webinars for clients, and more. While there may be additional costs to some of these strategies, it can be better to give customers more value for their money than cut costs. “Good retailers realize that they’re there to serve customers – and you need to figure out how to do that,” explains Fisher.
Avoid a Price Hike
It’s natural to want to increase prices during this time. If your paying customers spend a little more, then maybe you can keep your company running for longer. However, these days, people are extremely sensitive to any price increases. When one high-end grocer in Toronto dramatically increased its price on Lysol wipes, social media users had a field day – even Toronto’s mayor and premier weighed in. Pricing increases can lead to mistrust among customers, and maintaining trust is imperative during a time of uncertainty, notes Fisher.
Don’t start slashing
At the same time, you may not need to cut prices, either. Abhirup Chakrabarti, an associate professor and Distinguished Faculty Fellow of Strategy at Queen’s University’s Smith School of Business, says that many customers are still happy to pay regular price for certain products, especially items that consumers know have been packaged safely. As well, according to Nielsen research, 29% of North American consumers said they would continue to pay for electronics, while 27% said the same about clothing. There are also other pricing strategies to try. For instance, if your clients pay an annual fee for your service, you may want to consider offering monthly payments instead. A smaller per-month fee, rather than a larger one-time cost, could appeal to those with now tighter monthly budgets.
When should you cut?
Price reductions start making sense when inventory isn’t moving, explains Chakrabarti. If you’re sitting on products that aren’t selling, consider bundling or heavily discounting those items to generate some much-needed cash. It’s also important to know your customer. If you think discounting products could help your financially struggling clientele, then reducing prices could build goodwill and keep those customers coming back when things return to normal. If you’re concerned about the cash that’s coming, you could always discount some of your more-popular products or services now, and then bring your pricing back to normal after the pandemic ends.
Finding the right pricing strategy for your business may take some trial and error during this pandemic, especially as people’s buying habits change and the economy fluctuates. “The smart firms are going to experiment at some level,” says Fisher. “And each firm’s strategy will be different from another’s.”
The good news? “People still have to buy things,” says Fisher.
If you’d like to learn more about how FBC can support your business, call us at 1-800-265-1002 or email [email protected] Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also book an appointment online.
Disclaimer: The material above is provided for educational and informational purposes only.