I’m giving a talk next week about price transparency on the Internet (something I’ve talked about lots and lots before and something I touched on in yesterday’s Biznology webinar). During that webinar I referenced what I call “the race to zero” and why it’s such a bad idea for businesses both online and offline.
Here’s what happens:
- You experience soft business results. Maybe you have a bad month, maybe it’s a bad quarter. But you know this for sure: it’s bad. We’ve all been there and, believe me, it’s no fun.
- You reduce prices. Sure, you call it a sale, a special promotion, what-have-you. But it all amounts to the same thing. You lower your advertised price to your customers.
- You cut service or marketing to pay for the lower price. Well, you’re already having a bad month, right? Why keep funneling good money after bad. Again, we’ve all been there.
- Your short term sales improve. Or not. In the old days, you could get away with this a lot more easily. Unfortunately, today, your competitors can see your prices just as easily as customers can. So while you might gain some share in the immediate term, almost as immediately…
- Your competitors respond. They drop their prices. They launch a sale, offer a discount, a deal, eating into your (short-lived) advantage.
- Customer expectations shift. Experience suffers. You (and your competitors) just told your customers that your product isn’t worth what it used to be worth. Oh, and because you cut either service or marketing to pay for the new lower price, they’re right.
- The result: Soft business results. And thus the not-so-merry-go-round feeds back on itself.
Back before the Internet, you could sometimes run this race just long enough to get through a tough time. Not too many customers found out about the lower price. Your competitors were slower to respond. Folks who got a great deal couldn’t shout it out on Twitter and Facebook. Customers who got lousy service couldn’t tell the world on Yelp, TripAdvisor, Angie’s List, or anything like that. And maybe you got away with it long enough to deal with a short-term downturn.
It’s a death spiral.
And mobile only makes it worse.
The best way to win this race is not to run it at all.
Your customers expect good value for their (hard-earned, stretched-thin, beaten-to-a-pulp) dollar (pound, Euro, Yen, what-have-you).
Instead of running a race to zero, consider this:
- Offer value-adds, not discounts. When you enhance a product, service, or experience with something your customer values (and, ideally, doesn’t cost you much), you engender goodwill and good word-of-mouth without devaluing your primary offering. And you make it harder for competitors to respond with a like-for-like offering.
- Tell your story. A good brand story helps customers answer one of their most important questions: “Why should I buy from you?” And a great brand story helps explain why you’re worth a few dollars more than the guy across the street. Start building your brand story before a downturn (or today, if you haven’t already).
- Plan ahead. The economy seems to be slowly climbing out of the hole we dug a few years back. Which means now is the perfect time to plan ahead for the next downturn. Make sure you’re not committing common mistakes many marketing plans suffer from. And remember that things aren’t ever as bad as they seem.
Downturns happen. That’s true today and will be true tomorrow. No matter how good things get, they can always go wrong. But, by the same token, even the toughest times end eventually. The key is to get through them as quickly and as effectively as you can. Which is why you don’t want to wear yourself out running a race to zero.
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