Should You Lower Prices During a Recession?

Greg Ott
Should You Lower Prices During a Recession?
Staying afloat during a recession presents small business owners with a significant set of obstacles. In periods of economic uncertainty marked with declining incomes and slumps in consumer spending, maintaining a steady stream of customers can be challenging for even the best-run of companies.

Adjusting business strategies to account for difficult market circumstances becomes imperative for brands hoping to emerge from a recession without significant damage. 

The COVID-19 global pandemic has ushered in a complicated, worldwide economic recession. Lockdowns, stay-at-home orders, and widespread public health fears have forced businesses to adapt to a set of highly unusual circumstances. Jobs that may never have been performed outside of an office are now being carried out in full over the internet, and small businesses offering local services are adopting everything from digital payments to delivery and shipping to entice customers reluctant or unable to simply drop by the store. 

Among the many factors that must be accounted for when thrown into recession is a company’s pricing strategy. Adjusting prices in order to attract new business or reward loyal customers may seem like a sound decision in a price-conscious market, but the cost of your products may not reflect the true value of doing business for your company. If not handled correctly, slashing prices and offering discounts to secure business today can end up jeopardizing the long-term financial future of your company.

When Is It Worth Lowering Prices During a Recession?

It’s important to reconsider the sales goals of your small business when the economy is in a recession. Sticking to forecasts based on the assumption of a strong economy won’t serve you well when demand drops. Rather than focusing on business goals such as market share, switching to profitability benchmarks can help ensure that your company’s sales strategy is firmly planted in the black. 

Before lowering the price of products for your customers, take time to find ways to lower the overall cost of production. From raw materials to packaging, identify new methods of reducing production costs before passing the savings directly onto customers. Controlling the cost of your goods to find extra areas of profit can better prepare your business for a moment in which the need to drop consumer prices materializes. 

There are several circumstances in which lowering prices in times of recession makes good business sense. Extending discounts to long-term customers who may be struggling throughout an economic downturn, for instance, can be a gesture of goodwill that further solidifies your long-term business relationship. Bundling a collection of products or services together at a discounted rate can also generate demand during a recession, allowing customers to get more value out of a purchase. 

Whether you decide to lower prices or keep them steady, it’s important to clearly communicate the value of your brand to your customers. Your company’s unique selling proposition should let customers know why they’re better off doing business with you instead of a competitor, allowing them to better understand the benefits of the products or services you sell. A commitment to meet the needs of a particular niche or an unbeatable customer satisfaction policy can go a long way towards convincing even the most price-conscious customer to do business with a trusted brand. 

When Doesn’t It Make Sense to Lower Prices During a Recession?

Lowering prices for the sake of implementing a quick fix isn’t a sound recession strategy. Entering a price war with your competitors can leave you in a downward pricing spiral, potentially reducing the long-term value of your products or services. A race to the bottom also can have a serious effect on your brand image and damage your relationship with your customers. 

Offering volume discounts in the interest of boosting sales or clearing out inventory can also be ill-advised. Companies may feel the need to proactively cut costs for key clients, but in situations in which a customer wasn’t looking for a discount in the first place, money can end up being left on the table. Unless a client is truly prepared to walk away due to challenging economic circumstances, resist the urge to discount just for the sake of offering a discount. 

What Should You Consider Before Lowering Prices During a Recession?

In the wake of a recession, it may be tempting to cut prices and boost short-term sales. But without a sound strategy behind adjusting your prices, you can risk damaging your long-term profitability, brand image, and customer relationships. Luxury brands and services, for instance, can end up turning off customers by adopting fire sale tactics. 

Even if you don’t reduce the actual sticker price of your products or services during a recession, there are still several opportunities to extend value to your customers. Improved customer service options, such as flexible payment terms and generous return policies, can make customers feel more comfortable with doing business with you. Adjusting your overall pricing structure to simplify pricing options, such as cutting fees in favor of flat rates, can help customers better budget purchases without actually lowering costs. 

Whether or not you decide to cut prices, the best strategy is to consider what’s best for your customers. If extending discounts to long-term clients or bundling a set of products and services together at a reduced rate will help maintain profitability, reducing prices can be a net positive for both you and the customer. Likewise, if slashing prices will lead to a downward pricing spiral or corrupt your overall brand image, it’s worth reconsidering whether you should be lowering prices in the first place. 

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Greg Ott
Greg Ott is a writer and editor in New York City.