“Cutting prices or putting things on sale is not a sustainable business strategy. Equally you can’t cut enough costs to save your way to prosperity.” Howard Schultz, CEO of Starbucks.
If you’re trying to grow your business at the moment, you’re probably facing many headwinds that are holding you back. Rising costs & taxes, increasing competition, and clients cutting budgets are all putting the squeeze on your top and bottom-line growth.
Your first instinct is often to cut. Cut staff, cut spending, cut prices. But while cost-reduction can help in the short term, it’s rarely a path to long-term, profitable growth. In this article, you will learn what the typical challenges are that businesses face, and what the smart thing to do is in response.
Where Businesses Struggle.
Many companies hit the same roadblocks:
- Competitors undercutting on price, making it harder to win new business.
- Persistent challenges in closing deals and maintaining a strong pipeline.
- Increased marketing spend generating leads that don’t convert.
- Margin erosion due to rising costs, higher discounting, and pricing pressure.
- Fear of making a mistake with your strategy, leading to uncertainty about the next move.
The Knee-Jerk Reaction: Cutting Costs
When faced with these challenges, the natural response is to tighten spending:
- Reduce fixed overheads – cut staff or implement a hiring freeze.
- Slash discretionary budgets – marketing, training, and development take the hit.
- Drop prices or increase discounts – in the hope of stimulating sales.
While these might offer short-term relief, they often create bigger problems:
- Compromised quality – less investment in product, service, and staff.
- Low employee morale – existing teams feeling stretched, leading to disengagement.
- Declining customer experience – weaker service levels and product value.
- Brand perception – frequent discounts making customers question your worth.
So, what’s the alternative?
Price management is the only cost-free lever you can pull to increase profits.
The most powerful, cost-free lever you have to increase profits is pricing. But pricing improvement doesn’t mean simply raising prices across the board. That would be risky and ineffective.
Instead, the smarter approach is to go narrow rather than broad – focusing on targeted improvements.
How to Make Strategic Pricing Changes
Rather than blanket price increases, focus on targeted opportunities for improvement:
- Analyse customer data using the 80/20 rule to help identify your most profitable customers and products, allowing you to implement targeted price increases on lower value customers or discontinuing lower value products.
- Use smarter analytics to model price sensitivity scenarios to understand how a small change in price can impact revenue and profit. This will help you make a more informed decision about the actual business impact of a small change in price.
- Segment your customers into different tiers of willingness to pay (i.e. low, medium, high). This allows you to better understand how you should position your price offers to each customer group when selling new business.
- Optimise your product structure by repackaging your plans to offer more value (and raise prices) or unbundle some premium features and charge them as an add-on.
- Implement prices changes with a clear plan and make sure your teams are fully briefed and prepared – don’t do it in a rush before the deadline.
- Embed pricing power in your culture by linking sales incentives to margin (not revenue) and training your teams regularly on the value of your offering so they stop fearing price discussions.
Case Study: Getting Pricing Right
One company’s CEO wanted to force all its clients to upgrade to a premium product, raising prices by 10-20%. The management team feared backlash and churn. Instead, we advised a consultative approach:
- Conducting structured 1-1 customer interviews to understand actual willingness to pay.
- Aligning price changes with a product improvement roadmap based on customer feedback.
- Engaging customers early so they felt listened to and valued and were more inclined to be receptive to a price change.
Because customers felt they had been listened to via the consultation process, they were much more willing to accept the changes in prices that were proposed. In the end there was no churn whatsoever despite the initial fears & trepidations from the management team, resulting in a significant percentage uplift in revenues and profits.
Conclusion
When growth slows, don’t default to cost-cutting and panic-driven discounts. Pricing is one of the biggest levers you have to increase profits without spending a penny.
There is always a better way than what you’re doing today—and a smart pricing strategy can transform your bottom line.
If you need any help with your pricing, get in touch.
Image source: https://www.polymersearch.com/blog/profit-margin-by-industry