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Every economic forecast over the last 6 months or so has been predicting a slow down in the economy. It therefore follows that every bad result reported is a result of the predicted slow down in the economy. In other words there is an element of bad economic forecasts becoming self fulfilling prophecies.
This is not casting aspersions on the ability or integrity of the individual economic commentators however. They are extremely skilled in their chosen field and have access to vast amounts of key economic indicators. The element of self fulfilment is often driven by overreaction in the marketplace where businesses are trying to secure their market share in advance of the predicted downturn.
The methods of achieving this are varied, but the common thread is generally a combination of ensuring ongoing support from existing customers and getting as many new customers on board as possible. Too often the first ‘port of call’ in this strategy is to reduce prices to beat the competition. On the surface this has some merit – if the economic downturn has a roughly equal effect on all sectors of society then it would be reasonable to assume that with less cash in circulation then purchasing by price alone would be much more prevalent than in better times.
Or is it? Even in hard times there are certain basic fundamentals that apply to decisions of whether or not to buy from a specific supplier. These include customer service, quality, backups & warranties, convenience, range of products and overall satisfaction level. In fact, research has shown that only 20% of shoppers buy by price alone.
There are a range of strategies that can be employed to ensure your share of the remaining 80%, but they all come down to the same thing - creating delighted customers. Not satisfied but delighted. It is the supplier that can differentiate between these two descriptions that will always have the edge over its rivals. An analogy to explain how this works is when you go to the movies. Lets say you go and see a movie that had a good plot had good acting and was generally worth the price of admission. It not however of such outstanding quality that it ‘riveted’ you to your seat from start to finish. In short you were satisfied, but you didn’t feel the need to shout it’s praises. On the other hand, if you saw another movie that totally delighted, you would be more likely to want to tell other people about it.
If your marketing strategy relies on price alone, you will be beaten every time someone comes along with a cheaper price. A survey looking at why customers either don’t buy or move to a competitor offers some interesting insights:
- Convenience: 3%
- Relationship at a high level 9%
- Miscellaneous 5%
- Product/Price/Time 15%
- ‘Perceived Indifference’ 68%
100%
Finally, when considering price as a marketing strategy, consider this. If your present margin is 30% and you reduce your price by 10% you will have to increase your sales volume by a whopping 50% just to get back to where you started from. The interesting analogy to this is that if you were to actually increase your price by the same 10% then you could actually lose 25% of sales volume before your net profit was affected.
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