Cutting Prices Without Cheapening Your Image

By Greenhouse Grower staff|April 29, 2009

There’s an art to cutting prices without losing your profit margin.

Business Week recently reported on advice from John Quelch, a professor of marketing at Harvard Business School, who says, “You don’t want to give away your profit margin to customers who still would have paid full price.

”According a recent National Federation of Independent Business survey, nearly 30 percent of small business owners say they’ve lowered prices. But before slashing prices, it’s important to first consider other options, such as added perks or better service. If sales are still suffering, price cutting could be necessary.

“But chopping prices is not without risks, including a cheapened brand image and customers who will never pay full price again,” the story reads. “To discount successfully, you need to take a look at what your competitors are up to, then analyze your company’s previous experience with promotions. If discounting is uncharted territory, you might experiment with a short-term sale to test the waters, or if you can afford it, bring in a research firm to gauge customer responses to proposed price cuts.”

It’s also paramount that you don’t sacrifice service or quality in order to lower prices. “Once a company gets a reputation for poor quality, it’s hard to turn that around,” says Roland Rust, chairman of the marketing department at the University of Maryland’s Robert H. Smith School of Business.