Five Questions Small Business Owners Should Consider Before Reducing Their Prices

Discounting the price of your products or services may seem like a good idea. After all, you are operating in a highly competitive market, you're looking to gain greater market share and a price reduction will invariably boost your sales volume and result in greater profits, right? Well, "wrong" is the answer most small business owners find when they they go down the price discounting route.

Reducing your prices can often be the start of a downward spiral in your business fortunes that can be very hard to reverse, once it's underway. Here are some questions to ask yourself before you start discounting:

1, What effect will reducing your prices have on your brand? You've worked hard and invested time, money, blood and sweat in branding your products and services as representing quality, professionalism and terrific value. Now you are going to display a discount banner that will cut your prices and invariably undermine the image your previous marketing has built.

2, How difficult will it be to recover your prices in the future? Many small business owners discount their prices as a temporary measure - they hold a sale or make a special offer. But they find, to their cost, that it's very difficult to regain their previous price point. When you discount your prices, you effectively fix a lower perception of value for your goods and services in your prospects' and customers' minds and it will be a heck of a job to shift that perception back up again.

3, How will your competitors react? Discounting your prices may start a price war with your competitors that leads inevitably to you having to make further cuts just to stay in the game.

4, What will discounting your prices do to your profit margin? Presumably, you anticipate an increase in sales that will more than offset the loss in margin but what if that doesn't happen? You run this risk of being forced to cut costs which leads to a reduction in the quality of your product or service and a further reduction to the value you provide.

5, What message will discounting your prices send to your customer base? Many of your customers who have happily bought at a higher price point in the past may feel that the discounted prices indicate that they paid too much. What loyalty they previously felt for your products and services may well be replaced by a determination to shop around for the best price in the future.

Of course, there are circumstances where price discounting could work well for your small business. Perhaps you have a competitive edge that allows you to pass discounts on to your clients and customers without impacting your profit margins. Maybe discounting selected products and services would enable you to introduce new customers to your business who you are then able to upsell to your premium range. Just be aware that it's never a decision to be taken without a great deal of analysis, market testing and thought.

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