Pandemic Pricing
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When the going gets tough, the tough soften up and get flexible on their pricing. Well, that’s what it looks like from where I sit (in front of an Inbox overflowing with special offers). Why is it that deep discounting seems to be the preferred pricing tactic, when there are several other (possibly more lucrative options) to choose from?
Yes, discounting has been a common tactic in retail for just about forever. Think end-of-season reductions and end-of-range markdowns; Xmas sales and Black Friday specials Discount pricing certainly has its place, especially when you’re in a slump. It proves useful when a brand needs to increase customer traffic, clear out old inventory, and increase sales revenue quickly. But these are all short-term gains.
Have you considered the impact of discounting on your brand in the longer term?
Everything a brand says and does communicates something to its consumers. By this logic, adjusting your price sends a message. When you cut your price just once, it’s enough to trigger the buyer to wonder whether your original price was perhaps not enough of a value proposition to be worthwhile. Most people include the price in their assessment of value – and when it’s worth less to the seller, the implication is that it should be worth less to the buyer, too.
When you discount repeatedly, you’re teaching your audience that the asking price is flexible, and training them to delay their purchases until the discounts crop up. Unless someone’s in a pinch, why would they ever pay full price on a brand that offers periodic discounts?
In a recent report compiled by McKinsey, titled ‘Pricing through the pandemic: Getting ready for recovery’, they address the pricing challenges that businesses are facing owing to “radical shifts in costs, demand, and supply availability”. The report suggests that it’s possible to be creative in meeting customer needs while preserving value. It offers examples such as adjusting Terms and Conditions or restructuring payments. McKinsey cautions that at times like this, it’s easy for pricing discipline to slip, making it harder to get the balance between pricing and value right.
I’m not discounting the value of discounts entirely. I’m suggesting you use the price cutting tactic sparingly, to achieve specific short-term goals, and don’t fall into this tactic as a habit. A better strategy is to price for value, or to set your pricing at a competitive level so that your value proposition is strong to begin with. Better still is to bolster your brand equity when the going is good, reinforcing your points of difference. That way, you can remind your consumers about all the great things your brand stands for at times when they get sticky about the purchase price.
Brands that sacrifice price in the pandemic might solve their urgent challenges (like cashflow), but in doing so inadvertently create problems for the period beyond.
If you’re still not sure how to balance the short and long term needs of your business, this post on strategy and tactics will be helpful. If you need to review your pricing strategy, contact us to learn more about the work we do in this area.
Image by Justin Lim on Unsplash
