Most businesses are familiar with the concept of up-selling their customers. The practice involves adding premium features or services (along with additional costs) to common goods or services. Starbucks, for example, made a fortune by transforming the common $1 cup of coffee into $3 coffee drinks with exotic-sounding names.
Down-Selling in the Down Economy
In the current economy, however, many businesses should consider the benefits of down-selling. As the economy slowly rebounds and consumers begin to loosen their purse-strings, they are doing so cautiously and with a new-found appreciation for bargains. Many budget-conscious consumers now choose more basic and affordable options with fewer bells and whistles. The change in consumer behavior has created tremendous opportunities for businesses that offer basic products and services. It has also tempted many other companies to down-sell their previously premium products and services, but down-selling is a tricky and potentially risky proposition.
Long Term Effects of Down-Selling
For starters, down-selling can destroy your profit margins and diminish your brand. A prime example is the Martha Stewart brand. Martha Stewart recently pulled her once-lucrative Martha Stewart Everyday line of household products from Kmart’s shelves, arguing that the low-end line had diminished her good name. Information Strategies Inc. Chief Operating Officer Donald Mazzella says, “Martha Stewart has never been able to go back up to premium since Kmart. She is a commodity now.”
Much Easier for Small to Medium-Sized Businesses
On the other hand, most marketing experts agree that small to medium-sized businesses are much better positioned to experiment with new products and new pricing strategies than larger companies because they can respond more quickly to feedback and changes in the marketplace. The key is to sell your products or services at lower prices without cheapening your brand.
Focus on Value
You might consider offering something new to your customers. The new product or service can be a stripped-down version of a premium offering or a completely new product or service that satisfies a need created by the new economy. In either case, it’s a good idea to solicit customer feedback in order to ensure your new offering caters to their want and needs.
Instead of focusing on the new, lower price of your goods or services, focus instead on its increased value. Never give your customer the idea that you’ve come down on your pricing in order to make sales in a down economy. Instead, you must assure your customers that your products or services are still of the same high quality as before, but are being offered at a lower cost to serve their needs.
In recent years, automakers have become masters in the art of down-selling. Amid the worst sales slump in nearly 30 years, most automakers have been able to stay afloat by reducing costs and focusing on new models and new technologies that cater to their customer’s wants and needs. Even Toyota, with its recent high profile safety recalls, was able to bolster sales by offering new incentives and focusing on its heightened attention to safety and quality.
Know Your Business and Your Customers
Finally, it’s imperative that you know your business and your customers. Down-selling implies inclusiveness and, therefore, won’t work for every business. Even in tough economic times, many consumers are willing to pay more for so-called lifestyle products and services with which they closely identify.
In its transformation of the coffee industry, Starbucks didn’t simply offer its customers new, more expensive variations on the drink. The Seattle-based company also developed a corporate identity with which millions of coffee lovers and non-coffee lovers identified. As a result, Starbucks has managed to weather the recent economic downturn because its customers are paying for more than good coffee; they’re willingly paying a little more to be associated with the lifestyle Starbucks represents.
For the majority of small- and medium-sized businesses, however, some experimentation with down-selling can lead to innovative and more highly customer-focused products and services, as well as a broader customer base.