Lowering Prices is Not The Solution
The survival of any business depends on Customers. So what is the best way to attract customers? Some would say, lowering the price of your products is the correct answer; however, instead of gaining customers, this can actually cause you to lose them by either making your company look cheap creating a price war with your competitors. In a price war, there is no winners because, potential revenue is lost by all companies involved.
A friend of mine had this exact experience. He had a car washing business that was thriving in the urban part of town, when he was charging $40 for a full detail and wax. Because of his success, he considered expanding the business into a wealthier part of town. He researched what products his competitors were using and the prices they were charging, and he found they were charging close to $100 for the same services, using the same products. Expecting great success, he expanded and continued charging $40 for his services. To his surprise he wasn’t getting much business, which didn’t make sense to him because he was charging less than half of his competitors price. He decided to increase his price to $110 in this part of town, which resulted in him getting more business than he could handle.
Increasing business by raising prices may not make sense unless you understand the idea of perception. No matter the price of your product, as long as your customers perceive that its worth the price, they will pay it. In the previous example to the wealthier part of town a $40 detail and wax seemed cheap and therefore was perceived to be an inferior service, even though there was no difference between the two.
The next example involves the most expensive app ever created for the I Phone called “I Am Rich”. This app was just a screen with a black background and a red gem in the center (see the picture) and sold for $999.99, but did nothing! (Even more amazingly this app was sold 8 times before being pulled, because someone clicked to purchase it to see what would happen and didn’t know his wife enabled one click purchase(or so he says)).
Why were people willing to pay $999.99 for an app that did nothing? It leads back to the customers’ perception and which customer group you to attract. This product, for example, was marketed to people who just wanted to show off that they could spend a thousand dollars and not care.
As shown with these examples, cutting prices isn’t the best way to promote your products. Instead, find a way to create increased value of the product for your customers to warrant the current price charged. A great example of adding value to a product can be seen through the debate between Apple and Samsung. Although Samsung has a clearly superior operating system and phone specs, I Phone sales are higher than Samsung in the U.S. even though both companies charge fairly the same amount. I Phone has created a perception of higher value with the ineradicable attribute of their “Eco System”, which is the way customers of Apple can connect and sync their data across all their Apple products. This perceived value in Apple products enables them to remain competitive in the U.S. despite having an inferior device in most other ways.
To gain their trust and earn their repeat business, go the extra mile to give customers a positive experience during and after their purchase. It is much easier and less expensive to keep a customer than gain a new one.
