Should my company reduce it’s prices?

By Kieran Burns, 15th November 2010

”Do I have to reduce my prices ? ”

The Papers are full of economic commentators telling us that we must cut our prices. When consumers are not buying, isn’t that what everyone should do? The answer is No – Not necessarily.

Reducing your prices will not solve the Banking Crisis, will not restore the housing market, and will not stop the Government cutbacks which are the main reasons for the collapse in demand. A price cut may actually send out the wrong signals like “postpone your purchase and my prices will fall even further” or “like you, we also have no confidence in the future or in our product”. Shrinking revenues with wholesale price cuts will only end in more gloom.

At Burns Shanahan we believe that the key to success is protecting margins not sales. Instead of just  reducing prices why not undertake further analysis. For example

• Concentrate on products and services where you can justify maintaining your prices
• Get rid of the cost base associated with those product and services that make you no profit.
• Make your product more affordable by unbundling or repackaging it instead of cutting prices. Analyse the benefits that your customer gets from your product or services. You may have different customer segments which can be targeted differently and priced accordingly.
• Invest in product or service enhancements, which can improve customer satisfaction and customer demand. The return on such an investment is likely to be much higher than the investment required to finance the price reduction.
• Beware offering new customer offers, as these discounts may be seen negatively by existing customers. Existing customers are the lifeblood of the business so offer them loyalty rewards.

Pricing comes down to a delicate balancing act among three factors, namely your costs, the competitive forces in the market and the one most people forget, what are your objectives. If you have a clear goal about what customers you want to service and what represents a fair profit for you to do this, you will be able to strike a better balance among the other two factors.

Burns Shanahan are not advocating that you should price yourself out of the market, but if you want to stay in business you need to offer products/services at a price to cover your overhead and generate a profit. 

If you need help on pricing to be profitable, please contact Kieran Burns on 053 91212 or see the Burns Shanahan Chartered Accountants website

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