The Price Advantage

Good Tuesday Morning! Here's the next installment of this series from Chuck McKay:

Lower Your Profit Margins - Surviving The Recession - Part 5 of 7

Supply and demand tend to be somewhat elastic. Changing one causes a reciprocal effect on the other. When demand drops, supply increases, and all too often consumption decreases, too.

In our terms, that means gross sales will head south as people determine they can't afford to buy as much of what you sell.

But truthfully, people will still buy.

They'll buy from someone. Will they buy from you?

Two years ago Best Buy cut their profit margins by three to five percent. They watched same store gross sales rise by 8.3 percent.

Last year Wal-Mart cut prices on back-to-school items by as much as 50 percent, and saw their sales climb by 6.5 percent.

This year it's Safeway and Amazon. As a result of their decreased prices Safeway's revenue increased 7.3 percent, and net income 11 percent, while Kroger and Supervalu dropped 1.8 and 18 percent respectively. Amazon cut prices and watched their second quarter sales shoot up 41 percent, doubling their profit in the process.

What can we conclude? Consumers will continue to spend, and lower profit margins can help you gain disproportionate share of that spending.

Those extra shoppers can actually push your gross sales to record-breaking territory.

Should you be discounting?

Yes. Yes, you probably should. Slow times are when you drop the prices on your products and services to motivate those customers on the fence to come shop with you.

Reduce your margins by enough to stop the bleeding. Ten percent? Fifteen? You'll have to keep close tabs on your costs, your volume, and your margins, but there is a number that will spur sales enough to keep you profitable.

But don't just drop prices. Make it part of a promotion so that shoppers take action NOW, and so that you'll have less resistance to raising those prices again in a few months when the economy improves.

Notify your existing customers of your new promotion. Buy advertising to inform potential customers.

One more thought:

Until the recession shows signs of easing, you'll need customer goodwill more than ever. And you can't gain goodwill with a sales event.

A sales promotion will attract customers. It will generate revenue. But, it will also draw those customers which will be the first to shop your competitor when he drops prices, too.

Goodwill results from personal service, which is created by your staff. Low prices will bring them in.

Good manners, friendliness, and appreciation will keep them coming back.

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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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