To stimulate demand in tough times, reducing the price is a typical strategy that is floated by many business owners and executives.
Cutting prices by skimping on service delivery is not likely to thrill the client or ensure loyalty. At best, this is a short term strategy that can be very elastic.
Worked example: Airline industry
The industry decided to compete on price. However, lowering the price of airline tickets only generated a finite increase in sales and led to a negative impact on profits.
The airlines realised that beyond a certain low price point, they cannot sell any more seats.
Why is this?
The cost of ancillary hotel and ground transport costs remain fixed. This limits the attractiveness for passengers as the airline ticket is only one component of the overall cost of taking the vacation.
Gaining a premium by creating value by Prof Neil Rackham (Sales guru)
How to quit lowering your prices
Reduce risk, not price
Looking at the same issue from another dimension, it appears that in tough times the key issue is not really price – the issue is risk.
To understand the mindset of clients in tough times, we only need to look at at the Flight to Quality where investors move from higher risk to safe, blue chip investments.
We should build a strategy to focus on delivering safety when implementing decisions taken by clients. We need to make sure we deliver on the promise to meet the revised expectations of our clients.