Neiman Marcus is rebalancing its merchandise to include less-pricey products and will offer promotional and other events to boost sales.
Then there is Towerstream. Based in Middletown, R.I., it is a company that delivers high-speed Internet access to businesses. Not as sleek as Neiman Marcus but facing the same problems. Last year, the firm began finding it harder to gain and keep clients for an eight-megabit-per-second offering costing $999 a month.
In January, the company introduced a midrange product offering five-megabits-per-second for $500 a month, a price CEO Jeff Thompson felt would be more palatable. Although the average ticket item's price fell as a result, the company had a record quarter for installations and revenue increased 64% in the first quarter from a year earlier.
Thompson says the most difficult decision he faced when evaluating a price cut was determining if the lower priced product would cannibalize larger, more expensive products. “But the result has been tremendous,” he says. “We’ve been able to keep our existing customers and add new ones as well.”
His advice to other firms:
• It’s better to cannibalize your own product with something less expensive than to have a competitor woo customers with lower prices.
• Maintain market share at a lower price point to keep more of your existing customers. When the economy improves, you have a bigger client base and clients upgrade.
• If things go south, a CEO of a smaller firm can be hands-on and meet in person with corporate clients. That’s something larger competitors can’t often do.