Without a doubt, this is the worst idea I’ve ever come up with as a pricing expert. It goes against everything I’ve ever taught. This idea doesn’t apply to everyone, and it doesn’t apply across the board, but these are very unique times.
Please consider this.
The business world is in upheaval. Heck, the world is in upheaval. So many of us as individuals are making less than before. Consumers aren’t shopping, so businesses are making less money. Products aren’t flying off the shelves (except toilet paper?) so manufacturers are laying people off; besides, they can’t work together in close quarters anyway. Since manufacturers have slowed down, all of the companies and industries supporting them are slower. This sucks!
Someone recently asked me a question on what to do when their customers ask them for a discount. My first reaction as a pricing person was to ask the single most important question, “do you think they will leave you if you don’t lower their price?” While working out how they should make the offer, I realized I felt horrible about this. My humanitarian side hit me hard, hard enough to make me rethink my paradigms.
This is not a time for profit maximization. This is a time for survival, compassion and brand strengthening.
So many people and companies are suffering and trying to survive. If you’re lucky enough to be in a position that isn’t hurting, show compassion. Normally in business, I’m not a fan of touchy-feely ANYTHING. We provide value and we should be paid for it. I normally don’t believe in altruism, but right now I’m a true believer. Consider doing something nice for your customers. If your customers don’t need the help, then help someone else in a big way.
Maybe your stock price will take a hit. It will bounce back. Maybe you won’t hit your plan. Your investors will forgive you. I predict almost every company report will have an asterisk beside their 2020 results. In fact, companies that make more money in 2020 than in 2019 may be looked at questionably.
This desperate situation calls for bold action. Be part of the cure, not the problem. If you and your company are not in pain right now, then ask yourself – are you being selfish? Can you do more?
The goal is to help those in need right now. Help those who are being hurt. If your customers are being hurt, consider lowering your prices to them. If your customers are not being hurt, then consider doing something for the general population.
Who Should Get a Discount?
For many companies, some of your customers are suffering and some aren’t (at least financially). It is reasonable to help those that need help, while not extending unnecessary discounts to people not as affected. It may be challenging to identify which ones are which. There isn’t a single generic solution to this question, but here are a couple to consider.
If you’re a B2B subscription company:
In the B2B subscription world you can probably tell which customers are being hurt the most by their usage patterns. For companies with dramatically reduced usage, offer them a deal. Do it proactively.
If you’re not a B2B subscription company:
For B2C companies it’s likely harder to know which people are suffering. Here’s a technique that works for both B2C and B2B:
Rather than proactively offering a discount, you could give them help if and when they ask you for it. Assume the best in them. They probably need the help.
Another option is to give everyone a price break. I would only do that if I believed the majority of my market needed it. If I were a luxury watch manufacturer, probably not so much. (But I would be helping somewhere else.)
How To Extend Financial Breaks During a Crisis
Once you’ve decided to give a discount of some sorts to your market, these are three questions you should be thinking (in order of importance).
- How can I effectively help?
- How can I position it so we can bounce back as the economy bounces back?
- How can I get some brand goodwill?
Let’s look at each of these.
1. How can I effectively help?
The way to help most customers who are hurting financially is likely a price break of some sort. This could be a lower price, a rebate, a more favorable term, delayed payment. There are many ideas. You are trading off benefits to them against the pain to you, but in this case, focus more on what helps them.
2. How can I position it so we can bounce back as the economy bounces back?
When the pandemic ends – and it will end – you will want to get your prices back to where they were. I would do two things.
- First. Be sure to tell the customers you are reducing their price on a temporary basis to help them through this crisis. Tell them you will reevaluate the price every month.
- Second. Charge a different price every month. If the economy becomes worse, charge a lower price. If the economy improves, increase the prices slightly. The reason for frequently changing prices is you don’t want your customers to believe the lower price is the new normal. Remind them why they are getting a great price … for now.
If you’re a B2B subscription company, you potentially have a much easier solution. Rethink your pricing metric, what you charge for. Charge by usage. Then, as the economy comes back, usage will go up, and the price will automatically go back.
3. How can I get some brand goodwill?
Your intentions are noble. You will be helping your customers and society. You will likely experience the pleasant side effect of bolstering your brand and credibility. To nudge this along in your messaging, emphasize you want to help. Never mention your long term profits. When you do something nice for someone in times of need, they will remember. Please don’t take out ads bragging about how you’re helping. This can appear manipulative or arrogant. The customers you help will know what you did.
This was a very hard post for me to write, yet I was compelled. The message feels important. When this pandemic is over, I will go back to being my heartless logical self. For now though, let’s all put aside profit maximization and figure out how to get our world economy and the people in it back on their feet.
I would very much like to hear your thoughts. Feel free to comment here or send me your comments by email.