A guest post by Kalen Smith of MoneyFile.net.
Most businesses understand the importance of consistent branding. Sometimes, a branding method doesn’t work and needs to be abandoned. Most branding strategies will be effective if used long-term. But the way you price your products affects your brand a lot more than you would expect.
One of the concerns about doing business in a recession is that businesses feel they must change their marketing strategy to survive. They decide to compete on low prices rather than quality. These efforts rarely work long-term. Worse, after the recession is over, they may have permanently damaged their reputation.
Businesses that lower their prices and change their marketing campaign create some problems for themselves, such as:
- Lower profit margins. Lowering your price point will make it more difficult to meet your expenses. As competing companies engage in pricing wars, they may quickly find themselves unable to create a sustainable cash flow. Ultimately, they face stagnancy or bankruptcy.
- Reputation for poor quality. Your success depends on your reputation. When you lower your prices, you give customers the perception that you offer an inferior product at a lower price. Psychologically, customers find a link between quality and price. Customers will likely be confused what your new business model is and what you intend to offer them.
- Long-term brand changes. Changing your marketing practices in the middle of a recession can permanently change the way your customers view your company. Most businesses think they can drastically lower their prices during a recession and raise them again after the economy recovers. After the recession ends, customers will have permanently changed their perception of your products. Once they are used to paying $10 for a product, they will have a hard time thinking it is worth $30 again. You can’t just expect your customers will go back to paying the same price you charged them before the recession.
Lowering your prices in the face of a recession may seem like a good idea. However, it can be a dangerous practice to engage in. You are better off providing high-quality products and services. Throughout the economic downturn in 2008, customers consistently said they were still willing to pay fair prices for high quality products.
There is nothing inherently wrong with building a branding strategy that involves providing economical products for lower prices. The problem is that many companies try to change their pricing strategies in response to changes in the economy. This can undermine their branding strategies and hurt their profit margin.
If you have worked hard to build a reputation for quality, your best bet is to stick with that. Keep your prices exactly the same. Your customers will know what to expect and will continue to respect you for the quality of your services.
Don’t worry about what your competitors are charging. They may face insolvency in the next few months as they struggle to create enough revenue to meet their expenses.
Kalen Smith is a personal finance blogger for MoneyFile.net, a personal finance website in the saving and financial advice sector.
Tags: customers, Marketing, Pricing, Strategy and Tactics
Very timely! Kalen, you make good points on why price should be consistent and not sway during recession or when sales are low. I launched my product “ChessScribe” (an iPhone app) on July 30 at $6.99, and sales have been slow and I was tempted to drop it to $2.99 and see if sales would pick up.. now I won’t!
Interesting post — I agree that all of your points are real risks, and in addition, there is the reaction of people who previously paid more for your products to consider. No one likes being taken for a dupe ….
I agree, don’t buy work unless you really are desperate.
If you establish a brand for quality products/service, excellent customer service and helpful that will attract far more business.
I’m an accountant and never quote low prices to win work, I always try to tell the client how I will add value – help pay less tax is the main one.
Excellent points. Quality is key, and offering something that sets yourself apart from the competition can go a long way. I always love using zappos.com as an example that price is not everything. They sell their shoes at full retail price, but because their customer service and return policy is so great, people don’t mind paying the higher price for a better experience.
This might be the best article here on MarketingProfs I have ever read. Congratulations, Kalen! I totally agree with you!