You see, there seems to me to be such pressure from customers on businesses to discount or “do a deal”. Indeed we see advertisement’s on the TV and one recently by the BBC purporting to help the consumer by suggesting that if you are buying online, you go so far as the checkout and then abandon your purchase, expecting in all likelihood that the company (or website programmed by them) will send you a nice e-mail offering you a discount if you complete your purchase.
Of course all this is probably true; customers are coming to believe they can pressurise you to sell them whatever they want at whatever price they are happy to pay.
Given the recent financial crisis and the need to keep your staff fully occupied it’s an uncomfortable reality that we are very, very tempted to reduce our prices to compete.
You have probably already pushed your suppliers to reduce their prices and the numbers are already looking tight! You simply have to find the strength to say no.
In my experience even if you do stand firm on price, the customer will no doubt say “oh well can you also add xyz into the package then?” Even in a good market is very easy for the sales team to add a bit onto a project so they get their sales target with little true regard to the performance of the company they work for. And before some of you sales people cry out, I have personal experience of the same and in more than one company and I know other directors who have had the same experience.
Reducing prices to compete is ok if you fully grasp what the new margin will be on the sales you reduce the price on, or have a full strategic grasp of why you’re doing it.
Some years ago I worked in the Health Service and recall a company selling us soup mix. I was only young and remember asking the salesman how they could sell it so very cheap and he replied that the sales volume was so great that it covered the production cost of the manufacture thus other sales were the profit. That all makes sense but someone had given it a deal of thought.
The great risk is that if you reduce your prices to compete then before you realize it your cash flow is tight and your sales director is pushing for a further discount on that new order that he/she just knows will come in if only… And it goes on. Next you can’t pay your best staff what they deserve, your biggest client leaves because your service level has dropped and the rest is certainly not stress free!
The message? Stand firm, be proud of your product and service levels, most good clients are decent people and they’ll pay for a quality product and excellent service but if you do need to reduce the price to enable you to compete in a crowded market DO YOUR SUMS. The whole point of being in business is to make a profit.