During these economic times, the temptation is to cut prices to get more customers. This will only put you out of business faster. The reasons are these: cutting prices decreases net profits, you’ll need a larger inventory, you’ll need even more sales to make up the difference, and you will be encouraging customer expectations that you will drop your price even more! Instead market more effectively and efficiently.

Here are some excerpts from the very sage advice written by Professor Andrew J. Razeghi of the Kellogg School of Management at Northwestern University in Evanston, Illinois (see full contact information at the end of post).

“Moments of economic turbulence provide the unique opportunity to start
new businesses, launch disruptive new products, and strengthen customer
loyalty – often at a discount. During these challenging times, here are a few
pointers on what to do, why to do it, and what to avoid. But first, a little
motivation is in order and, rather than quote Charles Dickens, I offer you a
tribute to organizations who have successfully innovated through the “worst
of times”. When the going gets tough, the tough innovate. Here’s how”.

1) Listen to the market. It’s quieter when it’s less crowded. Unmet needs abound.

“Like innovators before us, use this time to be aware of the market, not afraid of it. The great mistake many organizations make during turbulent times is that they quit listening to the market. They pull back on research and development precisely at the moment when the market is speaking most loudly. Now is the time to listen to your customers. Now is the time to get out into the market and identify those elusive unarticulated needs you’ve been searching for. Listen to the market. It’s speaking to you. Unmet needs abound.”

Note: Fortune Magazine, Kraft Miracle Whip, Motorola radios, Revlon cosmetics are companies that got their start by meeting the unmet needs of people during the Great Depression.

2) Invest in your customers. Now they need you most. Loyalty hangs in the balance.

“Downturns provide the opportunity to strengthen relationships with customers thereby improving customer loyalty. At a time when consumer sentiment is nearly at an all-time low, rather than reduce customer service, use this time to get closer to your customers, connect with them on a deeper level, and show them what’s possible – what the future will hold.”

Note:  La-Z-Boy launched just months before the stock market crash of 1929.  This innovative company kept their customers satisfied by bartering for wheat, coal and farm animals.

3) Rather than reduce price, offer more value to your customers and demand greater value from vendors.

“During difficult economic times, consumers use greater discretion in making purchasing decisions. Every dollar matters and therefore every decision a customer makes is examined more closely. If your product or service isn’t extraordinary, your customers will be more likely to delay purchasing it. And, as every great salesman knows, time kills all deals. Given the scrutiny that customers place on decision-making in turbulent times, the knee-jerk reaction among some companies is to reduce price. However, before you reduce price, consider how hard you’ve worked to “get the price”. Moreover, consider how much time and effort has been invested into getting you to where you are. Certainly your sales are hurting, but there is something much more valuable at stake and that is your brand. Your brand is sacred and, in the absence of innovation, stand-alone price reductions can wreak havoc on your brand. In some cases, price reductions in the absence of innovation have led to the implosion of the entire enterprise.”

Note: Consider the fate of Vlasic, the famed pickle company. It went bankrupt and out of business by slashing prices.

4) Increase communication with your customers.

“In addition to staying close to customers, use this time to increase your communications with them. In times of trouble, the worst thing you can do is to hide. From a marketing perspective, this involves cutting back communications. This is particularly salient advice for consumer products companies where new products and marketing are its lifeblood, but it also applies to companies operating in a business-to-business environment”.

“Consider the evidence. In a study of 600 business-to-business companies, McGraw-Hill Research found that businesses that maintained or increased their advertising expenditures during the 1981-1982 recession, averaged higher sales growth during the recession and in the three years following. By 1985, sales of aggressive recession advertisers (those that either maintained or increased spending) had risen 256% over those that cut-back on advertising. Likewise, in 2001, another study found that aggressive recession advertisers increased market share 2 ½ times the average for all businesses in the post-recession economy. In 2002, the Strategic Planning Institute illustrated that, in contrast, during economic expansion, although 80% of businesses increased their
advertising spending, there was no improvement in market share simply because everyone had increased spending. Now is the time to increase communications not cut it back.”

For the rest of Professor Razehi’s tips and for the complete article go to:

Professor Andrew J. Razeghi
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, Illinois 60208
(773) 755-3100
a-razeghi@kellogg.northwestern.edu
www.andrewrazeghi.com

Well, I am off to hear Jay Conrad Levinson speak tomorrow in Orlando.  Should be interesting.  I will be listening for small business tips to write on when I get back.