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If you discount, do so carefully

June 18, 2009 |

With falling volumes and competitive environments, lowering prices is more likely to reduce revenue than increase it unless there is substantial uncontested volume increase offset, suggest the smart brains at PhoCusWright.

PhoCusWright's top three ways to plan smart during the recession:

Plan for each phase of the business cycle.

All business cycles have the same pattern: recession followed by recovery followed by rebound. Manage each phase in anticipation of the next.

- Manage discretionary costs during recession that do not overly inhibit the ability to exploit recovery when it comes.
- Manage the labor force in ways that support human capital pruning, development, cultivation and preparation for needed expansion when it occurs.
- Manage owner expectations for the near term, and position patience and loyalty for the long term.

If you discount, do so carefully so you can preserve brand value and price opportunities when recovery comes.

With falling volumes and competitive environments, lowering prices is more likely to reduce revenue than increase it unless there is substantial uncontested volume increase offset.

- Reduce price in circumstances only where the percentage increase in volume will offset the percentage decrease in price. Even then, be conscious of covering variable costs, precipitating an unwanted price war, or thwarting future opportunities to raise prices.

- Use opacity, value-add and packaging to obfuscate the actual dollar value of discounting and highlight unique service value.

- When discounting, reward the loyal customer rather than all customers.

- Negotiate shorter deals. Don

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