Ask an Expert: In this economy, will cutting prices help my business?
— -- Q: With business slow, it seems like it might be a good idea to lower prices and cut our fees. However, I am also worried about eating into my profit margin, which is already pretty thin. What do we do? — TJ
A: 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!"
Sure, we have all heard that this Great Recession is the worst economy in 50 years, and it is, but that does not mean that there have not been equally bad times to be in business, because there have.
And what works in times like these? You bet, discounting.
Consider 1974 if you will. That year, new president Gerald Ford had to deal with an ongoing, expensive conflict in Vietnam, a quadrupling of oil prices, a huge drop in the stock market, and 11% inflation combined with stagnant growth — or "stagflation".
With the economy in such bad shape, it hardly seemed like a time to start a new business, but that is exactly what 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, S.D., and set prices at a mere $8.88 a 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:
• Wal-Mart
• McDonald's
• Amazon.com
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. BMW could gain little by suddenly selling their cars for a lot less because its brand is based, at least in part, on expensive luxury. Discounting would cannibalize its brand.
