For all businesses, online and off-, price alteration is engaged pretty regularly. It starts with an effective pricing analysis – which involves a good deal more planning than just looking at what the other guy is charging – and then alterations are made in response to specific events or company goals.
These can be incredibly diverse. You could change prices in relation to changing costs of inventory, shipping, components, and simple inflation. We can think of these types of changes as the “permanent price changes”, which are in response to industry shifts that are out of your control.
But a company might alter prices for internal reasons too. A very well-known example is excess stock of products that aren’t selling too well, where a company lowers prices in order to clear it out and cut losses ahead of an inventory rethink. Another example could be a general price lowering across all inventory in the hopes of seeing increased sales over a particular period.
For sure, there is a haphazard and non-strategic way of doing it. You could look at a rival company, observe enviable sales for similar products, and then simply slash prices in order to see a rush of business. That is something of a cowboy approach – even if it often works.
Why Lower Prices?
In order to be smart about lowering prices, you need to know why you are lowering them – exactly. The way to do it is very much determined by why you are doing it and what you are hoping to achieve, whether this is a temporary price change (or sale) or if it is a more permanent overhaul of your pricing scheme. The goal of course is to see a better performance from your business. That means more profits, which might be quite tricky to do when you are lowering prices!
Every business move aims at profitability though, and pricing changes are certainly no exception. So why might you be lowering prices?
One reason could be that you want to implement a price-skimming strategy, in which case you will decrease your prices after the initial surge of interest. That allows you to ride a wave of interest at a higher price point, and then keep it going by lowering later.
Another reason could be that you have simply found a way to lower the costs of inventory acquisition and product manufacture and you want to pass these savings on to your customers to get ahead of the competition.
Discount sunglasses suppliers Olympic Eyewear note that increased inventory acquisition can lead to lower prices. So if you sell more, you might find you can also sell cheaper.
Whatever reason you decide for lower prices, you will want to make sure that you lower prices with a strategy in order to keep profits healthy and stable.
How to Strategically Lower Prices
Run Your Numbers
The reason you decide to lower prices might be competition and the need to sell more, However, you should not do this straight away, and certainly not before adding up all your variable and fixed costs to ensure this is feasible.
Pace Your Price Cutting
Often, you might decide that lowering prices is something that should be done incrementally (in order to clear out the last of the inventory more effectively) or you might drop prices across the board as a kind of sale. Also keep in mind that different products have different timelines for price cuts.
Ultimately, an in-depth knowledge of your products and your industry is essential for effective price cutting. The worst move is to do it haphazardly and in relation to stiff competition.