The Only 4 Reasons You Should Ever Cut Your Prices

Given the economic situation we find ourselves in following the coronavirus, which has reduced people's spending power, cutting prices can look like the logical way to increase sales.

It may produce a short-term result, but over the longer term it is not good for any company to cut prices in situations like these, for the following reasons:

• Cutting prices undermines the integrity of your pricing, and customers who bought from you earlier may conclude that they did not get a fair price at the time
• Cutting prices, particularly if you do it often, can lead people to think they should only buy at the moments when your prices come down

If you do have to cut prices, you need to explain to your clients in some way why you are in a position to do so, so that they understand the value of what you offer has not changed. For example: we are able to lower the price because we have organised a more efficient production method, or a new way of delivering.

All of that said, there are several situations where cutting prices is entirely justified without much explanation, and where it can still produce a good long-term result:

#1. You want to clear items that have been selling poorly for some time

Analyse the items that have been selling poorly for a while. Try to work out why that is, and whether you could invest in marketing or find some other way to lift their sales. If you cannot, then the only thing left is probably to cut the prices on those products — that is, to run a sale and free up space for other items.

#2. You want to make room for a new model

A new model has come out, and customers are now far less likely to buy the old one. In this case cutting the price of the old model is justified, to help it keep selling.

#3. You want to attract new customers

Sometimes the easiest way to attract new customers is to offer a discount on certain items — one that should, in that case, run for a limited time only.

#4. You want to reward customers who have been buying from you for a long time

There is nothing wrong with having a loyalty scheme for customers who have bought from you over a long period. You simply need to follow it through properly so that future purchases by existing customers remain profitable for you. A loyalty scheme makes sense if you can work out what acquiring a new customer costs you, and use that to work out how much of a discount it is worth giving an existing one.

TiramisuERP makes it very simple to manage the prices of your items and to build a loyalty scheme for your customers.