How to Stay Out of the Perpetual Price Slashing Trap – Part 1

Last Updated on Mar 25, 2011 by Jenna Scaglione

You know the drill…your competitors discount their prices and you must follow suit if you want to attract your audience and sell your goods. Unfortunately, this practice robs potential profits because you will always find eCommerce sites that are willing to make incredibly low profits (as low as 5-10%) just to stay afloat. Do you want to run a business by simply surviving? For eCommerce store owners this is a common scenario and most owners spend hours of unnecessary time fixing prices to meet the demands of the market.

Is price discounting a worthwhile strategy?

In some cases, yes. For example, if you are a dropshipper for the XYZ brand of bikes and the supplier discounts its rates, it would be in your best interest to discount your price in relation to the supplier’s price reduction. If you don’t, your competitors will surely do it and steal the business.

However, eCommerce owners can become “discount frantic” and spend most of their time and resources to this end…this is where the situation warrants an adjustment.

When will reducing prices damage your business?

In order to gain success in the eCommerce industry, you must pay attention to several strategies at the same time. Conversions, social media, SEO…these practices are often employed by businesses who are intent on implementing well-rounded, concise strategies. The madness occurs when one of these strategies becomes an obsession. This behavior will ultimately lead to the downfall of your business. Why?

Have you noticed the latest Google update that wiped out a number of sites who thought they were immune to Google’s algorithm changes? If you focus all of your efforts on SEO, your business will tank when a Google dance affects your site.

How does this relate to discounting?

If you center your business plan solely on offering the lowest prices for your goods in the industry, not only will you exclude your business from making real money, but you will also never understand the dynamics of building a business brand and trust.

Consider this scenario: You are in the market for new sneakers. Nike’s site sells them for $50, but Bob’s Sneaker Shack sells them for $40. When searching through the website for Bob’s Sneaker Shack, you cannot find a physical address, contact information and it looks like your kid sister could design a better website…which one would you buy from? Which one would you trust with your secure personal and credit card information? Wouldn’t it be worth $10 dollars more to buy from a brand you know and trust?

Though prices are important, trust in a brand is superior when it comes to running a business on the internet. By developing your brand and working to establish a loyal, devoted customer base, you can compete in any market without drastically slashing your prices. Stay tuned for Part 2 which will include practical steps you can take to build trust and compete with the “price-slashers” in your industry.