Is it ok to lower prices to generate more volume?
Any sort of action is to be taken when one faces a downfall in revenue. In such an economy which is growing slowly, there are certain reasons to be assumed that if prices were to be lowered one should sell be selling more and should be increasing the revenue and the profits too. But this might be true in certain cases while in others it might not be true.
There may be certain things that must be taken into consideration in order to see whether by lowering the prices more volume is being generated or not.
Variety of prices
Prices do matter because there is a very large range of prices that every customer has to pay. But, for most of the customer’s prices don’t matter for the product which they are able to afford easily. A variety of customers may be choosing from providers for a number of other reasons than price. This may include customer service, those salespeople which are responsive, choosing a wide range of product and services or they may have the habit of a specific place from where they are usually shopping from.
Lower prices with increased profit
If a person is considering a change in price strategy and he is not able to know that how a specific market is going to respond then one should survey the specific market in order to predict a number of results.
One should be selecting a group of those current customers with which a good relationship was established during the cycle of sales. When certain prices are being raised then the volume will be going down substantially but when prices are being lowered then volume may go up substantially.
One may not be able to base their pricing decisions on that sample of a small business which is lost. One has to do that analyses which are a detailed one. It should be such an analysis which is considering the loss and the win ratios, including a number of those customers who are being affected, it should also include transaction size. These analyses must be done by segment.
Willingness to pay
If sometimes prices are lowered in order to sell a specific product to some special group then such customers should be included who at first was willing to give you a higher amount. So, in this case, one needs to analyze their data in order to check how much of the incremental volume one is able to gain in order to offset that margin which one may be losing from their customers.
Solving customers issues
After one determines that in a certain segment their prices can somehow be higher than the prices of their competitors then one is able to make some sort of profit at those prices which are lower. In this regard, some things should be kept in mind. First of all, one should be able to save some money. This should be done if one is telling a specific customer that he should be price sensitive. One should be able to provide those services which are better. One should be able to understand what the needs of a specific customer are. For example their certain challenges like how a specific product is being used by them. If a customer is facing any sort of problems then how can they be solved?
If the provider who is dealing with a customer currently is charging much then there is a possibility that a customer may talk directly to that specific provider and like this, the provider may lower the prices so he may not lose the customer. But there may be a drawback for a provider if he is continuously lowering the prices of a product. Like if he is selling certain products at a lower price to a number of customers then the customers may develop a habit of taking products at lower prices every time when they come to purchase a product from the provider. This may also lead you to a spiral which is downward facing.
If the prices of products are being dropped then this might result in an increased volume but this may not happen very often. One has to pay a very careful attention to a certain product or the category level. But one should not take such an action which may be past the board. It should always be limited to some sort of data which is specific with those actions which are somehow supported.
If some sort of approach is applied which is scientific in nature then it will explain that lower profits are a result of lower prices. A person may also find such an area in which the prices set by a certain provider are high and one may be able to get greater profit if he is willing to sell his products at a price which is lower so more volume can be generated.