When is price-cutting good for your business?

Price-cutting has become a seasonal tradition.  This blogpost examines its drawbacks and explains when price-cutting can be good for your business.

It has become traditional for firms to join the frenzy of price-cutting in November and December called Black Friday and Cyber Week/Month. I shared my fears about how it can damage the direction of your strategic marketing in an earlier post. You can catch up HERE.

Briefly, my main fear for your business is that indiscriminate price-cutting can lead to a loss of strategic direction. I certainly do not suggest that you should never consider price-cutting.

How to use price-cutting to help your business grow

A price reduction is a powerful marketing lever for you to pull whenever you want to stimulate demand. However, this step risks damaging your business in the long-term. You should deploy it wisely in order to avoid damaging your positioning or competitive advantage. 

Price is a marketing variable that can be altered tactically. Price is always interlinked with Product, Place, and Promotion. Learn more about the 4P’s of Marketing HERE.

I illustrate this topic with the seasonal plant poinsettia. A poinsettia is considered to be a decorative plant for Christmas because its leaves change colour in winter from dark green to vibrant red. This change is a physiological reaction called photoperiodism. It happens because this plant is sensitive to the amount of daylight it receives. As the days shorten the leaves change colour.

Therefore a poinsettia will only turn red when triggered by circumstances. This requirement holds for price-cutting, too. You should keep your lowest price concealed unless you are triggered to reveal it by these conditions in the market-place.

Here is a list of the circumstances when price-cutting can be good for your business

  • Firstly, at launch/market-entry: it is useful to lower price at the outset to encourage trial, there-by removing a barrier between your product and customer.
  • Secondly, if your focus is Market-share: when you have a marketing objective to obtain market share. Price is a powerful tool for stealing sales from competitors. It is a method that is often used in the grocery sector.
  • Thirdly, Reward: to reward your loyal customers by giving a targeted bonus to them.
  • Fourthly, Surplus: whenever you have surplus stock to sell
    Finally, Cash-flow: if you require a short-term injection of cash

It is a bonus of being the owner of a small business or a sole-trader that you have the freedom to adjust your price. Please do so knowing when price- cutting  can be good for your business and not at any other time. Do not join others in price-cutting in winter, unless you have a compelling reason to do so.