Television commercials hawking the latest in body hair removal or diet pills that melt fat without exercising often try to lure buyers with that final pitch, “but wait, there’s more!” That dangler is then often followed by an offer for an extra whatever-it-is, and all the buyer pays for is an additional shipping and handling charge. Great deal, eh? As Lee Corso, an ESPN sports analyst and longtime former college football coach loves to say every College Football Saturday, “Not so fast!”
While discounting pricing might inject quick cash into a business, its long-term effects may kill that buzz. For starters, says Jerome W. Jones, a certified business advisor with the Ohio Small Business Development Center at Columbus State Community College, it’s imperative a small business owner not price their goods and services too low.
“Your pricing is your brand because price becomes synonymous with the quality of products and services,” says Jones. In addition, common sense dictates that lower prices translates into smaller profit margins for a company, and that certainly isn’t healthy for it.
One positive effect a price-reduction can have on a customer is the belief that if they don’t buy now, they will lose out on a great deal. Another impact of discount pricing is to “gain name recognition, especially if the company is new,” says Jones.
However, reducing prices on goods and services can also lead to some negatives for the business. For example, says Jones, if a company relies on sale prices to make ends meet, then they could be in for a rude awakening if and when they have to raise prices. “Consumers may get used to the lower price” and shop elsewhere if prices get too high, he suggests.
Another potential downside of sale pricing is that unless discount pricing is the company’s business model, it won’t likely be able to invest as much in employee training or quality customer service. Employees are likely to underperform and may even disappoint clients or customers, and that will cost your company more in the long-run than a sale price will.
In an article about discount pricing, author Katherine Farris says she does not support discounting the price of services. As she explains, when a professional provides services to a client, they are essentially selling their time as well as expertise. Offering a discount on those services can give a customer the impression that the professional’s time nor expertise are truly worth paying more for. And that, she says, is bad for business.
Tami Kamin Meyer is an Ohio attorney and writer. She tweets as @girlwithapen.
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