Pricing is always an important factor in the marketing mix but it seems to me that it’s easier to assess correctly when times are good.
In more challenging times, such as now, it becomes more difficult to gauge what’s appropriate.
Of course, testing will ultimately tell you what’s “correct” in terms of your marketing objective (which may not always be maximum revenue…at least in the short term).
But, let’s face it, most businesses don’t test as much as they should and in many cases you need a “best guess” to start with.
It’s a big temptation to simply cut prices when it gets harder to make sales.
And in some cases, they may be the right thing to do…
…if prices were too high to start with.
It could be, as well, that if we’re in for an extended recession, then the appropriate price level for some markets has shifted downwards for the time being.
Again, only testing will reveal that. If you’re facing a prolonged slump in sales, it’s definitely worth exploring the impact of a lower price.
In general, however, a general price cut shouldn’t be the first option.
Couple of observations based on recent experience…
At some level, people will view an offer as irresistible. For example, trawling through Virgin Records recently I saw a DVD that at $9.99 was a “must have” (“Saturday Night Fever”, since you ask).
If you need quick cash flow or you have stock you need to move, this can be an effective short term strategy.
I’ve noticed in the Internet Marketing arena lately as well a number of people offering info-products at very low prices.
Typically, $10 or $17 and if it’s a topic I’m interested in then it’s pretty much a “no brainer” to buy.
This isn’t a completely new idea, of course. And it has the drawback that you need to make a lot of sales to generate a decent amount of revenue.
The advantages are that you create a customer (and a number of studies have shown that such customers are more likely to buy from you in the future) and you at least make some sales whereas you might not have made any.
As a variant on this, is the strategy of offering extraordinary value to tempt people to open their wallets.
An example was the recent “Launch Tree” launch from Mike Filsaime and Anik Singal. The “basic” package at $77 really was a great deal.
(Aside, yes they had the inevitable upsells and seemingly endless “One Time Offers” so they probably cleared a decent amount of money…but the basic point stands.)
To sum up, for today, if you’re facing a sales slump…
1) Look at whether or not lower prices might make sense. You can always run a special promotion to get an idea of the impact lower price will have.
2) Take another look at your product or service offering and either create a “budget” version at a lower price or add extra value at the existing price point.