The Tricky Part of Price-Cutting

Never before had the executive seen price cuts in his industry. With his supply chain stabilized, and oil and transport prices down 20% from last year, he knew that he’d need to lower prices to remain competitive. But how to do that without alienating his customers?

Executives across industries are facing a relatively new quandary. As inflation slowly ebbs and some costs decrease, rival firms are lowering prices to keep cash-squeezed customers. But after paying higher prices for so many months, those customers may feel cheated. Or they may regard the product itself as less valuable. “Anything that alienates your most loyal customers can be really devastating to the brand,” says Richard Marshall, global managing director of the Corporate Affairs Center of Expertise at Korn Ferry. “They are your best ambassadors.”

It’s true that some luxury industries are seeing higher, not lower, prices—hospitality, for instance. “Anything four stars and above is really holding strong,” says Radhika Papandreou, sector leader of the Travel, Hospitality and Leisure practice at Korn Ferry. But in other industries, supply and demand are pushing prices downward. In the auto industry, for example, prices rose throughout the pandemic, with buyers paying a premium due to scarcity. With that scarcity dissipating, some analysts predict prices for new cars will decline by 2% to 3% this year and for used cars by 10% to 20%. Certain consumer packaged goods are also seeing some price lowering, as inflation pushes consumers toward more affordable options.

Mid-market, experts say, companies can change prices subtly without alienating buyers. One option is to significantly alter a product’s features, says retail expert Craig Rowley, senior client partner at Korn Ferry, to make new models distinctively different from those customers may already own. Another strategy is to maintain the base price, but to allow sales staff to give customers better deals. This means moving away from a model based on fixed prices. “If customers can’t negotiate, then every customer knows what every other customer is paying, and that’s what causes their dismay,” says tech expert Bradford Frank, senior client partner at Korn Ferry.

Marshall suggests handling price decreases proactively, by reaching out to loyal customers before the price change. This might take the form of a dedicated email or communications campaign expressing appreciation for the customer’s loyalty and letting them know the company is rolling out something new. The campaign could include an offer to apply the lower price retroactively for purchases made during the previous six months. “Bring customers in under your tent,” says Marshall.

If, following a price drop, a company finds itself playing defense against angry customers, Marshall suggests allowing sales or customer-service employees to offer something of value, such as discounted parts, a partial refund, or a year of free service. One option is to institute a goodwill policy: customers who contact the company to complain are provided one of these benefits. “I wouldn’t necessarily advertise it,” he says.

For more information, please contact Korn Ferry’s Global Sales and Service practice.

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