Fighting Price Wars

I was reading a great post by Seth Godin on offering intangibles to beef up your service. He lists a few ideas on how to add value to your service instead of cutting prices. Prices wars is an issue that I have been thinking about for a long time and after reading that post decided to post about my own experience with cutting prices to increase sales.

We find that most of the online business and industry sectors are engaging in price wars. With the advent of globalization, the proliferation of the internet and technology and the growth of online companies, the competition has become tough.

To get sales online you might be competing with 100s of other companies offering the same or a similar product or service. It is quite common to target the price as the defining factor in such situations and ultimately, prices get so low that no one makes a profit.

You should resist the temptation to cut your prices when the sales dry up. I know it is easier said than done, when you depend on the daily sales for your cash flow and they are hard to come by. I have been guilty of the same practice in some of my online businesses such as the graphic design business.

However, I changed the approach a little while ago and got good results. Instead of cutting prices, I decided to target the service or product and increase its value. Now, I agree, there are some products that can not be improved beyond a certain degree or can not be improved in such a way that your products are better than the competition. In such cases, and in most cases, really, it is better to think in terms of increasing the value by increasing the service aspect of your business.

It is hard to give examples to justify what I am saying but I will try. Perhaps these are not the best examples out there, but here goes.

For example, in the graphic design business, instead of cutting prices, you can offer better service or throw in some bonuses that would not cost you much but would create great value to your customers. You could for example, offer super fast turn around, or you could offer extra file formats or a personal one-on-one service etc.

If you are selling electronics on your website or on ebay and you get these products from a drop ship company that many others are using and offering the exact same products, you could offer free power cells, or free shipping or no hassle 100% refund and returns policy etc.

When you participate in price wars, your margins crumble and even if your revenue increases, you profits go down. If you do not cut your price, but offer an added bonus that costs a little (less than what you would have cut the price by), then you not only prevent your profit from going down but build a customer loyalty.