With growing use of the Internet and on-line selling, price comparisons between suppliers have become very transparent.

Customers have come to expect attractive pricing and at the same time, top value in product and service, which puts a lot of pressure on margins and makes it tough to turn a profit.

Reducing your selling price is a very easy thing to do, but what are the consequences on your margin of profit and what do you need to do to maintain that margin.

Firstly, let’s agree that our gross margin is the difference between your selling price and your cost price, so the only way to improve your gross margin is to sell at a higher price or buy in at a lower cost.

Trying to hold or win market share on the basis of price discounting is said to be the lazy strategy.

Picture this - You are a business working on a 35% margin, the market is getting very competitive and there is downward pricing pressure. You have a choice on how to react, you can either:
    A) Cut your margin 10%
        (from 35% to 25%)    
    B) Hold your prices and possibly   
       lose 25% of your sales  

Looking at these two options, a lot of people would probably pick option A, however, your accountant would tell you to pick B as you would make 21% more profit with option B.

In fact, working on the lower margin of option A, your sales would have to increase by 61% to make the same gross profit as you originally had, and in this market how realistic is that?.

Look around the major stores; the major brands are holding their price, why? They sell on quality of product, service, packaging, fit first time, availability, warranty etc.

Some customers think only in terms of price. They are better left to your competitors. What is more profitable is working with those customers who are happy to pay for value. Because if you are a market leader you will never be the cheapest to do business with because the competition spend their time watching what you are doing and how you are doing it.