I love this quote from the late, great Paul Harvey: “In times like these, it is good to know . . . that there have always been times like these!”
There is no doubt we are in a tough economy, what with the possibility of a double dip recession and unemployment still painfully high. And you know what works in times like these? You bet, discounting.
Consider 1974 if you will. That year, President Gerald Ford had to deal with an ongoing, expensive conflict in Vietnam, a huge rise in oil prices and a drop in the stock market. Moreover, double-digit inflation was becoming the norm, and that, combined with stagnant growth, led to a new economic term - “stagflation”.
With the economy in such bad shape, it hardly seemed like a time to start a new business, but that is exactly what Super 8 Motel founder Dennis Brown did, and he succeeded because he tapped into the economics and mood of the time and created a business that offered low, low prices.
Specifically, Brown opened a new motel in Aberdeen, South Dakota, and set prices at a mere $8.88 per night. By 1979, he had more than 70 hotels in his chain, and today, Super 8 Motels is one of the world’s largest discount motel chains, with more than 2,000 locations.
So yes, low prices can work, and work big time. Many businesses, in fact, tie their brand to low prices and succeed as a result:
So the question is not whether lowering your prices can work, sure it can, instead, the question is whether lowering prices can work for your business.
Lowering prices does not work for every business, and the one time that cutting your fees usually does not help much is when you have a high-end brand. Mercedes Benz would gain little by suddenly selling their cars for a lot less because the brand is based, at least in part, on expensive luxury. Discounting would cannibalize its brand value.
That said, the low price strategy often works for plenty of small businesses, especially in this type of economy. People want a bargain right now, and if you are not willing to give them one, then they just might take their business elsewhere.
When I am out speaking before small business audiences, I often say that one key to business is to ask people what they want and then give them what they want. I bet if you asked your customers what they want, today many would say lower prices. So you should consider giving them that.
But as you do, you do have to be careful how you do it, and how much you do it. Lowering prices will bring in more people, yes, but it will also eat into your margins. Crunch some numbers before diving in the discount wagon.
One good way to start is to choose a loss leader. That is, pick a product or service that you think would be more popular if you put it on sale, and then put it on sale. The idea is to attract attention and entice new customers and clients to your business with a great deal. The loss of profit on that item should hopefully lead to more sales of other things, hence “loss leader.”
Aside from the loss leader strategy, discounting prices can take other forms:
- It might be a regular sale
- It can mean bidding lower than you normally would on projects
- You might start offering discount coupons on Facebook or Twitter
Whatever tack you take, be sure that you let your actual and potential customers know that you are in fact giving them a deal. Mention it in your advertising and when you are chatting with them.
Low prices are a big selling point today, and if you do it, it is smart to take full advantage of it.
About Steve Strauss
Steve Strauss is one of the world’s leading small business experts. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. Steve is also the author of the Small Business Bible and his latest book is Get Your Business Funded: Creative Methods for Getting the Money You Need. A popular media guest, Steve is a regular contributor to ABC News Now and frequently appears on television and radio. His business, The Strauss Group, creates unique, actionable, entertaining, and informative multi-media small business content.