As the end of another year approaches there is nothing surer than Santa Claus that the sale signs will start coming out. This year, more than ever, it will spread outside the realm of retail as the reality of sustaining cashflow across the disrupted summer trading months hits home. I know it is the season for giving, but I fear too many companies will, this year, take “giving until it hurts” to the extreme.
While selling more may work some magic on your cash flow, there is a bigger picture to be considered; massacring your profit margin to get more dollars through the door is something very few businesses can sustain. In the increasingly competitive world of technology sales, once your prices are down there is very little opportunity to pull them back up. That applies equally to business to business selling as it does to business to consumer.
Pricing is one of the cornerstones of marketing. It should be as much of a science as it is an art form, but I frequently see product pricing approached as a gut feel guess or a knee-jerk reaction to a single event, instead of some serious strategic thinking.
Put in simple terms, what builds your business is the bit left over from the cost of building or buying your product and the cost of what you sell it for. We all face situations where we quite simply need to get more money through the door, whether it be for cashflow purposes or stock rotation, but unless we can reduce the cost of building or buying or selling at reduced margin makes little sense and is not generally a sustainable solution.
Unfortunately, price-cutting is often the only strategy considered in rapidly building the volume of sales – but it is a short-term solution that can create long-term problems. Yes, you can have a sale. Contain the sale period within a defined time-frame and make sure the products you mark down are capable of giving you the financial result you need.
If you’ve held a sale and still need more money, then what? Hold another one? But this tells your customers that you operate on the basis of a reduced-price model. It is why premium retailers only hold one, or at the most two, sales per year. It enables them to get the volumes they need from the sale, as well as ensuring their customers expect to pay full price for the rest of the year.
So what else can you try? Well, buy-one-get-one-free, (or any variations on this) effectively gives a price reduction without having to reduce your advertised price. Bundling a free gift with a volume purchase is another option, as is creating product bundles you can then on-sell at a perceived reduction. Providing an enhanced service offering, such as 12 months free support for any product purchased in December, can also create a buying incentive that has a similar impact to reducing your price.
Used correctly, pricing is one of the most overt tools for positioning your product in the market. If you are currently able to charge a premium for what you are offering, then hold onto that opportunity for as long as you can. Dropping your price to remain competitive should only be considered as part of your overall product management strategy – not just because its Christmas and you need some cash flow. I would encourage you to involve all your team in this discussion. If you can find a cheaper way to build or sell your product, or a more creative way to market it, then explore all of those options before you drop your price.
Bob Pinchin is the director of Sway.tech, a specialist communications house for technology companies. Email: firstname.lastname@example.org