With all of the frenzy surrounding Black Friday deals, and how they can benefit customers, businesses need to take some time out to consider whether or not offering deep discounts is best for their own businesses.
Whether it’s Black Friday, or whether you are trying to undercut the competition, lowering prices might not always be the best idea for you as a business. Even participating in deal site offers, such as those offered by Groupon and LivingSocial, can cause problems for your business. As with all things business, it’s important to consider your situation, and whether or not dropping the price is really your best option.
Pricing Strategy: Does it Match Your Company’s Image?
One of the most important things to consider about your pricing strategy is whether or not it matches your company’s image, and helps your company meet its goals. If your entire pricing strategy is based on discounts and being the leader when it comes to low prices, you could find yourself in trouble, since someone else could come in and undercut you.
Instead, think of your brand, and what you want others to associate with your brand — beyond price. Do you have an image of quality? Are you trying to cultivate the idea that you are an expert, and your product fits that? Think about Apple. Apple isn’t going to win a price war with any other computer maker. However, people that buy apple laptops aren’t looking to spend the least amount of money. Apple is considered cool, and has a reputation for quality and is known for the minimalistic beauty of its products. Because the Apple brand comes with a specific image, the pricing strategy reflects that. Yes, Apple occasionally offers discounts and sales (Apple is actually running Black Friday deals in 2011). However, the products aren’t the lowest-priced — and there’s no reason for Apple to try to lower prices very far.
Jumping on the Daily Deal Bandwagon
Another consideration is whether or not offering a daily deal is the best idea for your business. In same cases, offering a Groupon, or a LivingSocial deal, can really provide a boost. You get new customers in the door, and some of them spend more than the amount of the deal. In some cases, though, it just turns into a big loss.
First of all, you are offering such a deep discount that you are likely losing money on most sales. Plus, daily deal sites take a cut of what is spent online. In some cases, the daily deal site might actually take 100% of the sales, and you are left honoring the coupon, and hoping that this “advertising push” works out in the long run. This is a situation in which you need to decide whether you are offering prices that are too low through this type of deal. In some cases, offering a simple discount through a Facebook deal, or a coupon for loyal customers, is actually a better idea, since it will cost you less, and not run the risk of devaluing your brand.
Shaving too close to the margins can hurt your business. Instead of getting obsessed with lower prices, you can benefit from stopping and considering whether your pricing strategy, and whether your big Black Friday discount or Groupon, are consistent with the image you project. Consider your long-term goals as a business and honestly evaluate whether or not your focus on undercutting the competition is actually undercutting your own business.