Dumping valuable product at ultra-low prices comes with risk, experts say. (Mark Lennihan/Associated Press)Canadian small firms are faced with a problem that has been neglected over the past 12 months as they struggled with the fallout from the global financial crisis: how to attract more customers to their stores.

In general, customer flow is an issue with which these companies always struggle. Since the credit meltdown of late 2008, however, Canadian entrepreneurs have been cutting costs and conserving cash, anything to keep the doors open. Salesmanship took a back seat as managers figured buyers were not shopping much anyway.

Now, as the economic picture brightens, modestly sized firms are looking at ways of getting those gun-shy consumers walking back into their stores.

But, experts say, this time around, managers should think twice before slashing prices as their gambit for driving sales.

"There are a lot of ways you can thank your customers for sticking with you during the recession, but you might want to leave prices where they are," said David Simpson, executive director of the Families Business Centre of the Richard Ivey School of Business at the University of Western Ontario in London, Ont.

Recurring problem

Over the past couple of decades, Canadians have been conditioned to seek out those "50% off" or "red tag" specials at the mall.

First, it was Boxing Day. Then, "pre-Christmas" became commonplace. Nowadays, stroll through any mall in Canada, and you are bound to see store windows plastered with "Sale" signs.

'Mark it down if you don't want to order it again.'—Doug Fleener, Dynamic Experiences Group LLC

Retailers who resisted deep discount pricing lost customers as they were unable to offer some other compensating attribute, such as improved service.

Over time, the discount mentality has taken over many segments of the retail and small business sectors, experts say.

Thus, for many retailers, a return to bargain selling is an easy and comfortable strategy to jump-start store traffic.

Cash at a cost

Retailers win in the cost-cutting scenario because they get money to pay bankers and buy new inventory.

"Your best source of financing is always sales," Simpson said.

But dumping valuable product at ultra-low prices comes with all sorts of risks, Simpson and other small business experts say.

"It's a slippery slope. A lot of customers get conditioned to expect sales," said Doug Fleener, president of Dynamic Experiences Group LLC, a Lexington, Mass.-based firm that advises retailers.

Rather than attract buyers who are looking for the cheapest price, firms should be interested in why people are coming into the store in the first place and build on those strengths, Simpson said.

For example, they might discover that many customers are getting referred to their store, making sales an irrelevant strategy for maximizing profits, he said. That said, there are times to cut prices and ways to do it right, the experts noted.

"Mark it down if you don't want to order it again," Fleener said.

That way, a store can move unpopular stock, but "it doesn't devalue the other products in the store," he said.

Rather than storewide cuts, a store might offer clients a discount on the purchase of another product or a gift at the checkout, UWO's Simpson said.