Rafi Mohammed

4 Pricing Strategies to Prosper in a Recessionary Environment

Posted on February 3th, 2008 (0 Comments)

Peter Coy’s BusinessWeek cover story on the housing market warns “the worst is yet to come.” Peter concludes that we should be prepared for a further 25% decline in housing prices. Howard Schultz, Starbucks’ chairman and CEO, is quoted in today’s New York Times as concluding: “You would have to agree that the consumer is in a recession.”

Consumers scrutinizing their every purchase, competitors desperately slashing prices… how is a company to price for profits and growth in this market?

The key to pricing in this unnerving environment is to NOT explicitly discount your prices – this lowers the perceived value of your product or service. This makes it difficult to raise prices when economic prosperity returns. For example, suppose your $400 an hour corporate lawyer reduces her rate to $300. Then, a year later when the economy improves, she tries to reclaim her $400 rate. How are you going to feel? Suppose Sub-Zero lowers its refrigerator prices by $1,000 – how will this affect your perception of the Sub-Zero brand?

Here are 4 pricing strategies that will keep you competitive during recessionary times and positions your company to reap higher profits when the economy returns to prosperity:

  1. Give Rebates. These rebates can range from instantaneous (“at the check-out”) to mail-in. The point is for customers to “register” your current price in their minds even when they receive a discount.
  1. Offer More. Keep the same price levels but provide more value. Tactics include promotions such as: “Buy 5 at full price, get 2 for free” and value bundles that include extra services and/or products.
  1. Offer Versions. Attract new customers and keep current customers in the fold by offering lower priced versions. New York Times reporter Stuart Elliott wrote about Quiznos’ recent addition of $2 “Sammie” flatbread sandwiches to its menu. Introduced in November, Sammies currently account for 15% of sales.
  1. Introduce New Pricing Structures. Instead of just offering outright purchases, give thrifty customers the opportunity to enjoy your product with a new pricing structure. Options include offering rentals, generous financing, and off-peak prices.

These four strategies will help you weather the recession while maintaining your product’s perception of value. And here’s the best part, once the economy bounces back, you can withdraw these recessionary pricing promotions and easily transition customers back to full price.

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