It's a total myth that billionaires are smarter than us mere mortals. I've interviewed more than a few, and believe me, when you get outside their area of expertise, they're more often wrong than right. (Elon Musk bloviating about Artificial Intelligence comes to mind.)
However, when you get inside a billionaire's area of expertise, they're worth listening to. When it comes to pricing strategy, Warren Buffett is an excellent role model, because he is hands-on with pricing whilst dealing with the companies in which has invested.
According to a recent article in Fortune magazine, Buffett has historically tended to suggest his companies, when responding to competitive challenges, either raise their prices or hold them steady.
This is excellent advice to keep in mind during any difficult economic situation, a pandemic very much included. (Needless to say, price gouging during a pandemic is not just immoral and wrong, it's brand suicide, so don't even think about it.)
Anyway, while discounting sounds like a great way to drive sales, especially when demand has plummeted, it's almost always a dumb move, even if you make it clear the discount is a "one-time deal." Here's why:
When you discount, you train your customers to think of your product or service as being worth the discounted price rather than the list price. Then, when you charge your list price, they think you're giving them a bad deal.
This is doubly true if you offer a discount on the sly to a single customer and the news gets out...as it almost always will. Thus when demand falls, the courageous (and smarter) pricing move is usually to hold steady.
The same is true when you're faced with competitors undercutting your price. Rather than get into a price war, you're better off keeping your price stable and instead invest in the three things that are more important to customers than price:
- Relationship. All things being equal, most customers would rather do business with their friends rather than with strangers. The same is true even if things aren't equal, btw. To build your relationship power, invest in your sales team and the tools they need to connect with your customers.
- Convenience. Of all the resources to which your customer has access, the most rare and valuable is time. Therefore, if you make your product easier to buy than the competition, you can charge a higher price than that competition. Classic case: Apple won a huge share of the music market by making it easier to buy a song than to download it for free.
- Uniqueness. Finally, if your product has something that your competitors lack and your customers want it badly, they'll pay extra for it. The challenge here is finding a feature that's 1) difficult for your competitors to imitate, and 2) that you can convince your customers to view as uniquely valuable.
You may have noticed that the list above is just another way of expressing the three basics of marketing: 1) customer relations, 2) channel development, and 3) product strategy. Do these basics right, and then, if your competitors try to start a price war, they'll just be shooting themselves in the foot.