It seems like everyone’s lowering their prices these days. You’re probably bombarded with “extreme” offers every time you turn on your TV, open a newspaper or check your email. Offers like “one dollar Starbucks”, “kids stay free at Club Med”, and “Hyundai Assurance” are just the tip of the iceberg.
Price dropping is often a knee-jerk-reaction many brands embrace as a means of keeping revenue flows steady in the face of waning consumer spending. Every department wants to produce last year’s results. Price cuts and unprecedented offers can be a way of keeping everyone within organization content.
There is a danger in this though. Because it’s more difficult to quantify, many companies overlook the long-term affect price shifting has on “perceived brand value”. This value is even more crucial for small businesses to maintain because of the direct correlation between your price point, the quality of your work and the reputation of your referral network as a whole.
Lowering cost of your services is a slippery slope. This is true across most industries but to better illustrate the point, imagine you are an accountant. You’re apprehensive about this year’s outlook so you lower the cost of your services by 25%. You hope this will secure some more sales.
Fast forward a year from now and imagine it’s tax season again. The economy is doing great, you have yet another year of experience under your belt, and you think it’s time to ask a bit more for your services so, you increase the price by 25% of the original.
You’ve probably already figured out the inherent dilemma. Why are your clients going to pay 40% more next year for services they perceive to be almost identical to last year’s? Marketing blogger Drew Mclellan got it right in his post, “Should you lower prices during a recession?” Drew says, “A low price strategy is one that’s easy to slip on and incredibly difficult to shrug off, once the economy turns around.”
The problem is that price slashing is a “subtractive” strategy. Yes, it’s easy to execute but it’s also a terrible long-term strategy for a small business’s growth.
One strategy that’s been overlooked in the blogosphere is executing a referral promotion campaign. In many ways, rewarding those who send you new business is the exact inverse of price slashing. Never the less, the potential to drive more revenue is equal if not greater than simply devaluing your services. Referral offers are an “additive” growth strategy. By fostering reciprocal behavior you are essentially adding value to your price point, your services, as well as your referral network.
A recession is the perfect time to launch a referral offer because the perceived value of the incentive you offer to those who send you qualified sales leads is much higher. For instance, let’s say our accountant offers a $25 iTunes gift certificate to every new client you send him. Incentives are relative; so while during times of prosperity it may be easier to overlook the value of a $25 gift certificate, in a recession it could just be the perfect motivator.
The positive ripple effect referral offers will have on your bottom-line is immeasurable. From simply brightening a client’s day to creating a good conversation starter at your next appointment, adopting a referral offer strategy will positively affect this year’s sales as well as next.