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Discussion: What Happens When You Lower Your Prices?

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Besides this immediate, leveraged impact that a price cut has on profitability, proper pricing is also essential for any salesperson looking beyond just this quarter’s quota. A price cut may help close business today, but it only makes future sales even harder, because of the effect it has on your buyer’s behavior:

Reinforcement: It is human nature that behavior which is rewarded is reinforced and repeated. When your buyers ask for price discounts and you oblige, you are reinforcing an escalating series of future discount requests in the future.

Signaling: Secondly, think carefully about the signal that price sends to your customers. In products that are difficult to evaluate before purchasing, prince is one of the most significant cues to the quality. When you lower your prices, what signals are you sending about the quality you offer and your confidence in it?

Trust: Backing off your price demanded at the late stages of the sales cycle may contradict everything you had previously said to the buyer during the sales process. They will not trust your words in future sales.

Relationship: Customers who switch to you because of price will leave because of price. The length of the relationship will be taken out of your control.

Top Comments

Jim Broderick

Principal Consultant at The Pricing Pyramid

Good post and a practical way of explaining effects of discount on bottom line and I agree with Warren about the intangible effects of discounting. 

I feel that pricing is a two pronged approach; setting the price and selling the price. As pricing professionals, we build business cases to constitute the value and subsequently the price. If sales professionals are not trained in negotiating and selling the differentiated value, then our work is for naught. We are left creating ways to counter or minimize the effects of discounting.

Gary Ritzert

President – CEO Ritzert Retail Price Consulting, Inc.

Good discussion.
There are a lot of factors that go into lowering a price:
1. What is your current pricing position in the market relative to competition?
– are you the high price merchant?
– are you the low price merchant?
– are you the market leader?
2. Why are you lowering the price?
– to become competitive?
– to make a price point?

These are just a few of the many question that need to be asked before lowering prices.
Too often a merchant will lower a price on to cause the new price to be the market price by most merchant, but now you are making less profit. Why?

Sharon Resheff

Manager, Pricing and Planning at SanDisk

Like this article and plan to share with my sales colleagues, because it speaks to their agendas. What is your perspective though on pricing in a commodity market, like memory, where annual price declines of 20-30% are normal?

Crosby Pamberi ACSI

Online Pricing Manager at Moneycorp

What I take from it is that if we pay close enough attention to delivering our customers’ needs (i.e. creating value for them); then price will become secondary to the discussion. In fact, if we do a really good job of providing value, we’ll become so differentiated from our competitors that we’ll be effectively offering a different product – the exact one our customers want. And for that, no price is too high.

More Here: http://www.linkedin.com/groups/What-Happens-When-You-Lower-4260036.S.5813652497675341828

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