Small Business Low Pricing Strategy

A Low Pricing Strategy Rarely Helps Small Business

A small business low pricing strategy price is used too often and by too many small businesses. Many small businesses think that having the lowest price in the market will make them successful. It assumes you can take business from your competitors simply by publishing the lowest price.

Low-Pricing-Strategy-Depositphotos_14207004_m-2015.jpgHowever, for small business having the lowest price is not necessarily the best marketing strategy. Often established or larger competitors have the ability, with lower operating costs, to out-compete a small or new business on price alone. Bigger more established competitors could force you to take further price reductions that reduce your profits in trying to compete with your larger competitor's low ball pricing to force you out of the market. Evaluating whether a low price strategy is appropriate for you, starts with looking at market demand and carefully considering these three factors in your analysis:Your pricing strategy can ultimately determine your business fate in a small business. By managing your pricing strategy, small business owners can extend business longevity and produce healthy profits.

  • Competitive Situation: Look at your competitors whole product offering and don't just look at their pricing. Are they serving only price-conscious customers or the high-end customer segment? Do they offer any value-added services?

  • Determine Your Ceiling Price: The ceiling price is the highest price the market will pay for your products/services. It is usually necessary to conduct a survey with industry experts and customers to define your product/service pricing limits. You may also discover the highest price you find in the market may not be the correct ceiling price.

  • Understanding Price Elasticity: Ultimately this is what will determine the range of pricing for your products/services. If the demand for your product or service is less elastic, then you can enjoy a higher ceiling on your prices. Meager elastic demand will depend on: 

    • if there are a limited number of competitors 

    • your buyer's perception of quality 

    • if customers are not just looking for the lowest price in your product/service category.

Having analyzed the price/demand dynamics for your products/services, you can compare these results with your costs and profit goals previously established in your in your business plan or financials. You should not automatically assume a low price strategy as the best pricing strategy and is usually best avoided by small business. However, there are market conditions that might force small business into a low price battle with its competitors; this is called a price war.

Small Business Price Wars

Avoid a price war at all costs. It can not only destroy you and those immediately located around you but an entire industry. Below are some steps you can implement to avoid participating in a price war.

  • Develop a Strong Brand: A strong brand that is meaningful to your customer base and will always be able to command a higher price and avoid price wars.

  • Offer Obvious Differentiation & Value-Add: Whether it is your company, product, or service be sure your customer base knows why you are different than your competitors and your value-added proposition of doing business with your firm.

  • Foster Exclusivity or Create a Niche: Your ability to offer exclusive or niche products or services insulate you against declining prices in a price war.

  • Discontinue Unprofitable Products/Services: Always be re-assessing your product/service offerings and eliminate marginal or unprofitable ones and replace them with new ones that customers want and will pay for their value.

Carefully, consider your price decisions. Your business will likely depend on it. A Small business with a well thought-out pricing strategy can avoid the temptation to use a low pricing strategy and avoid price wars.

More on small business pricing:

Small Business Pricing Standard Pricing Methodologies

Small Business Promotional Pricing & Discount Pricing

New Product/Service Pricing Methods

Your Bottom Line
We recommend you stay away from low pricing as a primary pricing strategy in your business. If you have any questions or would like to explore how a through analysis of low pricing as a strategy contact us now at 866-875-2534 or order a small business pricing strategy review now.