Q: Steve: What do you think of offering deep discounts? My husband thinks it would be a good way to drum up more business, but I worry that it will cut too much into our profit margin. Thoughts? — Meg
A: As I like to say: Ask them what they want, then give them what they want. And I agree with your husband. What people want today, for the most part, are ways to save. If you can figure out a way that works within your business, there is no doubt you will get more business; less profit per sale, for sure, but more business.
The danger is that if you do it too much, you risk losing money, damaging your brand, or both.
That said, when cutting prices works, it really works. Consider: In the past year, two Fortune 500 companies that had banner years were Wal-Mart and McDonald’s. What they have in common, of course, is that they try to offer value for less.
Another advantage to cutting prices is that it fosters loyalty, and in an economy like this, that is no small thing. For instance, Nolan Ryan and his team of new owners of baseball’s Texas Rangers recently announced that they are “lowering prices on concessions, parking, and merchandise” because it is a way of “showing appreciation for the fans’ loyalty and support.”
If it works for the big boys, it can work for us. Here are some do’s and don’ts of cutting prices:
Figure it out: Usually it is not a good idea to simply cut prices across the board because 1) that makes it look las if you were charging too much before, 2) it turns your brand into a cut-rate warehouse sort of deal, and 3) it lessens the “thrill” for customers of finding a great deal on a few, selected, desired items.
The key is to look for products or services that are both popular and in which you have a healthy profit margin, so you can afford to take a hit.
Look for less expensive items and/or vendors: Another option is to buy and sell less expensive items than you normally carry. I have a pal who sells antiques. His motto is “It’s all in the buying.” He knows if he can buy an item cheaply enough, he’ll make a profit.
So consider buying cheaper items from your regular vendor, or look for new vendors.
Let people know: Toot your horn. Have a sale. Advertise it. Tweet it. Since the whole point of this exercise is to get more people in the door, it follows that the more you let people know you are having a sale or discounting, the better you will do.
Offer value for less: Cutting prices on quality items that people want is usually better than discounting junk you want to get rid of. Offering value for less is what fosters loyalty and enthusiasm.
Do it across the board: You have to maintain your brand, and unless your brand is “the low-cost leader” cutting prices too widely will backfire. Be judicious and do it only on items that are certain to get people to buy from you.
Lose money: You may use the “loss leader” strategy, whereby you take a loss (or close to a loss) on something to get traction and sell more of your other items. That’s smart, but be careful. The point here is to make money, not lose money,
Lose sight: Another risk here is that customers will come to expect the lower prices – that might be good, but probably not. You don’t want to train them to expect discounts, or worse – to wait to shop with you until there is a sale. So remember that discounting works, but usually it is best done conservatively.
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Ask an Expert appears Mondays. You can e-mail Steve Strauss at: firstname.lastname@example.org.And you can click here to see previous columns. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is The Small Business Bible. You can sign up for his free newsletter, “Small Business Success Secrets!” at his website —mrallbiz.com.