I was recently considering a purchase for a luxury item. Let’s say it costs $1,000. I didn’t need it; not sure I even wanted it that badly.
Not too long into the sales process, the price became $750. Then some bells were thrown into the deal. I’m still not convinced. Not because I don’t see the value, but because I don’t know if I really want it.
Then it became $600. A few minutes later, $500. Hmmm… Then, finally, some whistles were added to the complimentary bells.
This made me start thinking about how pricing too low can actually make a product feel less valuable and less trustworthy.
You see where this is going. What should the price really be?
At some point in time, the lower price erodes the value more so. Is it actually of real quality? If it can be “discounted” this much, what is the true value? Can you trust a brand that quotes a price and then dramatically discounts it and throws in the kitchen sink? Is it pre-owned? Some sort of recall? A fake?
I think I would have been thought a fool by the very person selling me at $1,000, had I bought it at that price. At $750, maybe I’m a stone-faced negotiator? Bells thrown in at $750? I’m an actual genius. But, as the deal goes along, I’m feeling like a sucker. Because they were trying to screw me at $1,000, is it even worth $500? Either way, they went too low and took the value out of the transaction.
This experience made me think more broadly about pricing strategy. Businesses often focus on how high they can go, but going too low can hurt perception just as much.
When business owners and marketers consider pricing strategy, the usual thought process is how high the price can be before you begin alienating the core customer or prospect. Everyone wants to maximize profit without reducing the volume of sales. There are market demands and considerations for what it is you are selling: Is it readily available? Is it a newer version? Who needs or wants it? Is it almost a commodity?
Branding also comes into play big time when consumers consider a price. Is the brand recognizable? What is it known for? Do they provide a warranty? Is this good, better, or best in the category? Does it give me status?
Most considerations are how high you can go with price. But you can go too low, too.
Think about a can of green beans that costs 15 cents sitting next to others at 99 cents. Or a stereo for $79 across from ones starting at $799. Is it a bargain or is it junk?
Most people are familiar with a premium pricing strategy. “It must be pretty good, or they could not ask that much for it.” We just have to decide if we really need that “quality”. The reverse is true as well. Price too low, and you are removing the value altogether.
(We lose money on every deal, but we make it up in volume.)
