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Propping Up Pricing Power in Down Economy

Stocks in this article: MW DWRI HD

"I am more prone to go to Starbucks (SBUX) instead of McDonald's (MCD) because I will get 10% off and have already opted into the program," explains Tzuo. "These are strategies for keeping your customer base and sometimes increasing it, collecting cash up front and smoothing out your revenue line."

So a local business like a restaurant can offer frequent customers through its Web site the option of joining for $20 a month and in return getting perks like a free dessert whenever they come for a meal, a promise of a table within 30 minutes of dropping by, or 10% off the entire bill.

"If you can acquire 100 regular customers, that would be fantastic," says Tzuo. "It's more predictable so as a business owner, you can size how you want to expand your business because you have a known revenue. Whereas advertising, one month it's up, one month it's down. It's hard to build a business and get visibility about how you'll be six months out."

Be flexible: When it comes to financing, that is. Clients may be more willing to do business if they can pay for it over time or can put money down in installments toward purchase. For example, Sears (SHLD), which last offered a layaway plan in 1989, brought the program back for the holidays. Another option: Offer customers discounts if they pay in cash. "Anything to get the money up front," says Maxwell.

Sales as a last resort: Cutting your prices may be the easiest and fastest way to see an uptick in sales, but it won't last. In fact, it can be more harmful down the road as customers come to expect your products at steep discounts. "A big mistake is thinking that it will solve the problem," says Baker. "The other mistake is you are underestimating the customer and that the only reason they are buying is price. If you have a story to tell and there is something special about the product, don't sell yourself short."

If you must go down in price, make sure your clients know it's a temporary thing, that it's a special occasion. Once you whittle away at your margins, you may not be able to recover.

Lan Nguyen is a freelance writer based in New York City. She has written for the New York Daily News, The Wall Street Journal, Worth magazine and Star magazine.
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