Pricing strategies

Pricing is crucial to retail success, and it always will be, but what should you do during a downturn like we're seeing in 2009?

Lots of retailers are succumbing to the pressure to slash prices to stay competitive, or to attract new customers.  This works, no doubt about it, but what are the long term effects?

First, you train your customers to expect the lowest prices.

Second, you run the risk of commoditizing your products and services.  If all you're doing is competing with Wal-Mart on price, then you're never going to win.

Third, you reduce your average margin, meaning you have to sell more units to make the same profit.  In this climate, customers are buying cheaper stuff and they're buying less of it.  So, will reducing your prices really help you break even?

Fourth, you may not be able to raise your prices again once things get better.  You don't want to get locked into discount mode, do you?

It's difficult to buck the trend and go your own way, but winning business today is about more than simply price.  It's about perceived value and overall benefit to the consumer.  Sure, they can go get their items cheaply at Wal-Mart, but can they get a nice shopping experience, or product advice at a big box store like that?  Probably not. 

Leverage your knowledge, and your location to provide a better shopping experience and help the customer help themselves, and you can engender loyalty that will lead to years of sales revenues, while protecting your margins.