Jim's Marketing Blog

Marketing tips and ideas to help you grow your business

The hidden cost of cutting your prices!

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The current economic downturn has encouraged many businesses to cut their prices or fees, in order to be more competitive.  These price cuts create a number of important, often overlooked issues.

Here are a few common price cut issues you need to avoid, along with some suggestions and answers.

Even small price reductions have big consequences

When a company cuts its prices, it needs to make a significant increase in sales – just to maintain the same profit level it had before the cuts.

For example: A business I studied, which was making around 45% net profit, decided to lower its prices by just 10%, as a way to halt it’s drop in sales.  It then found that it needed to increase sales by 20%, simply to stay as profitable as it was before the 10% price cut!  When you consider that many smaller businesses are cutting their prices by two or three times that much, it gives them a huge mountain to climb!

So, if a company is planning a price cut, it needs a powerful marketing strategy in place; to generate the additional sales required, to cover the drop in profitability.

The great price drop paradox

Consumers have been taught that when prices drop, so does quality.  Because of this, when a company cuts its prices, its customers actually pay far closer attention to the quality of the products and services they receive.  The paradox here, is that by lowering its prices, a company often attracts far more scrutiny from consumers and more complaints; than when they offered the same services at a higher price!

So, if a company is planning a price cut, it needs to pay more attention than ever to customer service and quality control.

Sudden price drops in a recession are often seen as a panic measure

Your customers and prospective customers are all very aware that the economy is struggling right now.  They are also aware that many companies have gone broke recently – many of whom will have cut prices before hand, in an effort to increase sales and turnover.  A company must, therefore, ensure its price cuts are not seen as a panic measure.

So, if a company is planning a price cut, it needs to market the cuts correctly; so as to reassure existing clients and the marketplace.

It’s easy to cut prices but hard to increase them again

Once a business cuts its prices, customers get used to the new, low prices very quickly.  In fact, these low prices stop ‘feeling’ as if they are low and very soon start feeling like the typical, regular price.  This can cause a major problem; when the provider needs to increase prices to their normal level again.  Although they are simply charging customers what they used to, their customers will feel the ‘pain’ of a price spike.

So, if a company is planning a price cut, it needs to have a powerful strategy in place, which includes plans for increasing prices again.

My advice

If you want your products or services to be twice as valuable to your customers and prospective customers – Don’t cut your prices in half!

Instead, find a way to double (or more than double) the value of whatever you provide!

How to sell ANYTHING!

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In this post, I am going to show you how to sell anything (and for a great price too!)  This means not only making a sale or gaining a new client/customer – but making that sale or winning that contract in the most profitable way possible.

Overview

People often tell me that once they get ‘in front’ of a prospective client, they are pretty good at converting the prospective client into a paying client.  The problem is; they just don’t get in front of enough people! If this sounds like you or someone you know, here’s the solution.  By the way – forward what I am about to share with you to everyone you know that might find it useful!

If you are finding it hard to sell something, the temptation is often to lower the price, especially during a tough economic climate.  This is almost always a REALLY bad idea! Ironically, when we speak with buyers we find that price is not primarily what they base their buying decision on!  We find that quality, support, utility and back-up are ranked higher than price.

Before writing this article I held a poll where I asked people, which of the following were most important to them; price, quality or backup & support. Overwhelmingly, price came back as the least important! In fact, there is a lot of data to suggest that lowering prices actually reduces sales.

Price only becomes a hurdle when the cost of something is greater than its perceived value!

To make something sell, you need to make the perceived value of it higher than the asking price.  For example, a £100 item with a perceived value of £200 will sell very successfully; however, a £200 product with a perceived value of £100 will really struggle.

The bottom line is that people need to believe they are getting a great bargain.  If they do, they will happily spend their money with you.

What is ‘perceived’ value?

Perceived value is the value that someone places in a product or service, based on what they believe it to be worth or their perception of its value is. Whenever you find yourself looking at the price of something and thinking it’s a great deal, it’s because your perceived value of it is higher than the cost.

how to sell anythingThis is why successful sales and marketing is based around making the perceived value of something appear as high as possible, so that the offering seems like a real bargain when you learn the price.

Sadly, the marketing used by most businesses does very little to increase the perceived value of their products or services (herein called products).

Therefore, these businesses focus on reducing their prices; so that the price matches the low perceived value of their products.

In other words, they end up selling a great product for less than it’s worth – and make far, far fewer sales too.

OK – Enough about how ‘THEY’ sell and market themselves (that’s their problem not ours)  Here’s how YOU can sell more than ever before! (I really am too good to you!)

Firstly, focus on the benefits of whatever you are selling and make those benefits sound as valuable and irresistible as possible.
It is not enough to say something generic like ‘our service saves people money’ – you must give an example of how you saved someone a ton of money and then compare the cost of your service to the saving it achieved!  For example, when I was marketing my services in the 1990’s, I would send a prospective client  my quote; along with a press clipping of how I helped a business triple their turnover in just 120 days – by helping them get the biggest contract in their history!  It worked really well, because it showed people the value of my service and made my fee seem an outstanding bargain!

My competitors sent their quote in with a business card and their fingers crossed!

Failing to clearly show the true value of your products in your marketing will cost you a fortune.  Back in 2005, I met with an Accountant whose practice was in real trouble.  After looking at his marketing material and website, I explained to him that there was no mention anywhere as to the value of what he did; how he could help people pay less tax, make bigger profits and hold onto more of their hard earned money.

Here’s what he replied;
“Jim, if people are too stupid to work out for themselves what an experienced accountant like me can do for their business, that’s their problem!”

“No it’s not” I explained! “It’s very much your problem – because they will take their business elsewhere and you will go broke!” Within 18 months he had lost his business and was working for a former competitor!

Secondly, you need to add ‘bonuses’; things that people will value but which cost little to provide.
For example, I give away a free ebook and free mainland postage and packing to people who buy my Motivation Master Class Audio CD’s.  The ebook version of this programme is worth £9.99 and the free postage and packing is saving my customers a further £4 – making the programme exceptional value.

Thirdly, because value is always relative, you need to look at the perceived value and price of what your competitors are offering.
One of the ways a potential client decides what value to attach to your product, is to compare it with what your competitors are offering.  You must, therefore, research what your competitors are offering and then make your product more valuable than theirs.

For example, my friend Cheryl works in London as an Estate Agent; specialising in selling homes worth over £1.5 million.  The very first thing she does when she takes on a new client is show them around the other homes in their area that are being marketed at the same price.  This way, her clients can see what their home is being marketed against – how it measures up against the competition. Cheryl is then able to encourage them to make the improvements required to make their home stand out against its competitors.  The end result is that her client’s homes always sell very quickly and for a great price!

Fourthly, review your marketing material.
Take a look at your marketing material, everything from; your sales letters and advertisements to your website, blog and any marketing emails you might use.  When you read them, does every sentence and every paragraph pump value into your products and your business?  If a potential client reads your marketing, is it going to motivate them to take action, call, email or meet you?  Is someone reading your marketing material going to feel compelled to call, meet or email you?  If the answer is no, you are losing a fortune in sales.

How to sell any product or serviceIt is essential to the success of your business that your products are seen as being of exceptional value.  Competition has never been greater than it is today PLUS the consumer has never had so much choice.  If your marketing is pedestrian in its approach, it is hurting your business so improve it NOW.

Finally, review your sales pitch or presentation.
When you speak with a prospective client, do your words add value to whatever you are selling?  Do you identify their problems during your meeting and then sell your product as the answer to these problems?  If not, throw your presentation or sales pitch into the bin and start again!

No one wants to meet with you, to be bombarded with a list of benefits and features and then quoted a price or fee. They want you to inspire them, to show them that you have something that they absolutely need!  They then need to be certain that you are the best person anywhere to buy it from.  Your sales pitch is all about pumping value into your products and your business and then showing the person that you want their custom – not because you are greedy – but because you believe that if they buy from anyone else they will get a worse deal overall.

If you really believe that your products, your service or your business is the best solution for someone, you have a moral obligation to stop them making a mistake! You have an professional obligation to ensure that this person gets to benefit from being one of your highly valued clients.

This message must resonate powerfully through your marketing, your conversations and all your interactions.

Get moving!

Go on – right now, pump the enthusiasm you feel for your product and business into all your marketing and sales messages!  Make sure everyone knows how valuable your product is and how much you want to help them.  Don’t leave anything up to chance.  Tell your prospective clients that you are looking out for them;, that you provide a stunning service and that the only way you can be sure that they will be looked after is if they allow you to service their requirement.

You are a knowledgeable, hard working professional and you want your years of experience to help these people and their businesses!

Now go and make sure that EVERYBODY knows!
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