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Why PRICE is the most important thing...

Rabby

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Executive summary: It's because you messed up.

My CPA told me one day that there is nothing more important than price. If I want more sales, I should lower my price, because nobody is going to pay more for the same thing if they know about a lower price.

What a cute idea. I have a product I charge $625 for. I noticed one competitor charges $100 for "the same thing." Well, they claim to get the same job done anyway.

Guess what? My company has 30% of the market, state wide, in that product. Why doesn't the person charging $100 have the whole market? I'm obviously committing a crime! Charging over 6 times more! Deplorable!

The truth is, people could give a rat's tail what you charge, as long as they can afford it. Companies will pay you $50,000 for something they need without batting an eye. Individuals might pay you $3,000 without a second thought. The key is:
  • positioning yourself as a person/company they like and want to buy from
  • establishing trust
  • giving them what they need
  • amazing them with the preposterous level of value you're willing to deliver
So the next time you're tempted to drop your price and compete with some big company that gets volume discounts on widgets from China, or you're tempted to do the holiday 93% off + BOGO sale, just stop and ask yourself if there is anything else you can do to engage your market.

Discover what people really want (hint: they'll either tell you, or their actions will tell you).

Design everything in your company to interface well with your buyers (hint: make it easy and make them smile).

Improve your products and services until people refer their friends without even being asked (hint: when their friends praise them as a genius for referring you, you're partway there... keep on truckin').

Ok? So please don't listen to my CPA on this issue, even though he's excellent at what he does and a super nice guy (he really is!). Don't listen to yours either, or your aunt Karen, or whoever is trying to beat you down on price.

Find the part of the market that wants what you can deliver, and maximize value for them.

If you can't charge multiples over the so-called price leader in your market, and still take more share than them, take a closer look at what you're doing!
 
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jesseissorude

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If you were charging $120 and your competitor was charging $100, then that might be a problem.

At $625, I instantly think "These products are not even in the same universe."

I just released a new product, and I straight up asked a wholesaler I was working though "What do YOU want to sell this for?"
Similar versions of my widget are $100 (well, $99.99), the owner of the store asked me if he could charge $149. He said if it's more expensive, it's easier to move off the shelves faster. It just occupies a different space in the customer's brain.

It's still early days, but I set it at the higher price point, and we'll see how it goes!
 

Hubble

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If you were charging $120 and your competitor was charging $100, then that might be a problem.

At $625, I instantly think "These products are not even in the same universe."

I just released a new product, and I straight up asked a wholesaler I was working though "What do YOU want to sell this for?"
Similar versions of my widget are $100 (well, $99.99), the owner of the store asked me if he could charge $149. He said if it's more expensive, it's easier to move off the shelves faster. It just occupies a different space in the customer's brain.

It's still early days, but I set it at the higher price point, and we'll see how it goes!

I'd be interested to hear how it goes. It sounds like an insightful comment. Higher price increases the perception of value.
 

Rabby

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I'm interested too. I know it works on me... there are things that I never pay the lowest price for. Lowest price antibiotics or cold medicines for my child? Nope, I'll take the name-brand. Do I know anything about antibiotics and cold medicines? Probably no more than average, but I assume the manufacturer with a reputation and a higher price is going to be more careful, less likely to cause harm.
 
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Knugs

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I'm interested too. I know it works on me... there are things that I never pay the lowest price for. Lowest price antibiotics or cold medicines for my child? Nope, I'll take the name-brand. Do I know anything about antibiotics and cold medicines? Probably no more than average, but I assume the manufacturer with a reputation and a higher price is going to be more careful, less likely to cause harm.

They used to sell different kinds of ibuprofen for a different kind of pain. It was hilarious, you could buy 400mg ibuprofen for tension headaches or the 400mg for migraines, or back pain and they would have all had different prices on them.
So people would pay for the expensive brand ibuprofen for their back pain although there was the standard ibuprofen next to it for cents.
 

Andy Black

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Executive summary: It's because you messed up.

My CPA told me one day that there is nothing more important than price. If I want more sales, I should lower my price, because nobody is going to pay more for the same thing if they know about a lower price.

What a cute idea. I have a product I charge $625 for. I noticed one competitor charges $100 for "the same thing." Well, they claim to get the same job done anyway.

Guess what? My company has 30% of the market, state wide, in that product. Why doesn't the person charging $100 have the whole market? I'm obviously committing a crime! Charging over 6 times more! Deplorable!

The truth is, people could give a rat's tail what you charge, as long as they can afford it. Companies will pay you $50,000 for something they need without batting an eye. Individuals might pay you $3,000 without a second thought. The key is:
  • positioning yourself as a person/company they like and want to buy from
  • establishing trust
  • giving them what they need
  • amazing them with the preposterous level of value you're willing to deliver
So the next time you're tempted to drop your price and compete with some big company that gets volume discounts on widgets from China, or you're tempted to do the holiday 93% off + BOGO sale, just stop and ask yourself if there is anything else you can do to engage your market.

Discover what people really want (hint: they'll either tell you, or their actions will tell you).

Design everything in your company to interface well with your buyers (hint: make it easy and make them smile).

Improve your products and services until people refer their friends without even being asked (hint: when their friends praise them as a genius for referring you, you're partway there... keep on truckin').

Ok? So please don't listen to my CPA on this issue, even though he's excellent at what he does and a super nice guy (he really is!). Don't listen to yours either, or your aunt Karen, or whoever is trying to beat you down on price.

Find the part of the market that wants what you can deliver, and maximize value for them.

If you can't charge multiples over the so-called price leader in your market, and still take more share than them, take a closer look at what you're doing!
@Timmy1990
 

jesseissorude

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They used to sell different kinds of ibuprofen for a different kind of pain. It was hilarious, you could buy 400mg ibuprofen for tension headaches or the 400mg for migraines, or back pain and they would have all had different prices on them.

Ha! Reminds me of Nuprin
Ah+nuprin+little+yellow+different+_9a5d20ec8762a43af4765aadb326ad19.png


That pricing didn't work out so hot for them, of course.
Although their "differentiator" was just that it was more expensive, not "specialized" to back/head/etc pains

I'd be interested to hear how it goes. It sounds like an insightful comment. Higher price increases the perception of value.
Sure thing! I'll post results in my intro thread. They officially go on store shelves this Friday
 
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Walter Hay

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They used to sell different kinds of ibuprofen for a different kind of pain. It was hilarious, you could buy 400mg ibuprofen for tension headaches or the 400mg for migraines, or back pain and they would have all had different prices on them.
So people would pay for the expensive brand ibuprofen for their back pain although there was the standard ibuprofen next to it for cents.
They were not different kinds of Ibuprofen, they were simply labeled differently. A very sneaky way to alter perceived value.

In Australia, the company was fined $6million for deceiving consumers.

This subject interests me because in my B2B importing business I never sold my products at less than double the price of my competitors. Marketing was based largely on perceived value.

This was reinforced by the use of stunning portable displays used by commission reps, and later by franchisees. The 3D logo and brand appeared to be made of solid gold, and a copy of the logo in the form of a 3D label was at the head of every display.

When people saw that and wanted to buy, why would they quibble over the price when they were obviously buying luxury?

Walter
 

Timmy C

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Executive summary: It's because you messed up.

My CPA told me one day that there is nothing more important than price. If I want more sales, I should lower my price, because nobody is going to pay more for the same thing if they know about a lower price.

What a cute idea. I have a product I charge $625 for. I noticed one competitor charges $100 for "the same thing." Well, they claim to get the same job done anyway.

Guess what? My company has 30% of the market, state wide, in that product. Why doesn't the person charging $100 have the whole market? I'm obviously committing a crime! Charging over 6 times more! Deplorable!

The truth is, people could give a rat's tail what you charge, as long as they can afford it. Companies will pay you $50,000 for something they need without batting an eye. Individuals might pay you $3,000 without a second thought. The key is:
  • positioning yourself as a person/company they like and want to buy from
  • establishing trust
  • giving them what they need
  • amazing them with the preposterous level of value you're willing to deliver
So the next time you're tempted to drop your price and compete with some big company that gets volume discounts on widgets from China, or you're tempted to do the holiday 93% off + BOGO sale, just stop and ask yourself if there is anything else you can do to engage your market.

Discover what people really want (hint: they'll either tell you, or their actions will tell you).

Design everything in your company to interface well with your buyers (hint: make it easy and make them smile).

Improve your products and services until people refer their friends without even being asked (hint: when their friends praise them as a genius for referring you, you're partway there... keep on truckin').

Ok? So please don't listen to my CPA on this issue, even though he's excellent at what he does and a super nice guy (he really is!). Don't listen to yours either, or your aunt Karen, or whoever is trying to beat you down on price.

Find the part of the market that wants what you can deliver, and maximize value for them.

If you can't charge multiples over the so-called price leader in your market, and still take more share than them, take a closer look at what you're doing!

I needed to hear this right now, thanks OP
 

advantagecp

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As a general rule I agree with the OP. One of the most common rookie mistakes is to cut prices too low and think that will lead to success.

However there are times when pricing does matter. About 25 years ago I started up an independent real estate brokerage with pricing being one of my two points of differentiation. I went from zero to market leader, and a very profitable one at that in a few years.

The key points with that business:
1. The competition was charging 6% of the sales price of the home. Charging 4.9% is significant for the seller but there is still a lot of meat on the bone.
2. In real estate, business brings business. Own the listings, own the market. All of those listings brought buyers to us.
3. A listing which did not sell would go into our property management portfolio, which became very valuable.

So the issue is not always simple. My example led to market domination and high profits. If you are selling widgets on Amazon in a crowded market, then don't plan to dominate because you cut price. But then really, you shouldn't be in a crowded market in the first place but that is another issue.
 
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Rabby

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@advantagecp Nice! In your case, from the sound of it, pricing was part of a larger strategy.

Not sure if you'll agree, but I would venture that price wasn't the most important thing in your business. Or was it? You had a multi-part business model going where a listing, in some cases, led to a property management contract.

So the listing price, while lower than competitors, was lower for a reason other than the typical "I'm afraid nobody will buy from me if I'm not the cheapest."

It sounds like it was an entry point of sorts; or you used it to control the landscape, and then operated another stage of the business on that landscape.

But maybe not... I only know the information you gave above. Maybe my rant doesn't apply to everything! Maybe my CPA is right and I just don't know it yet! (Ok, probably not that.)

That said, don't let me give you the idea that I just charge the highest price for things, always, and for the heck of it. If I did, I would probably fall into the category of people who think price is the most important thing... just on the high side.

I just avoid letting price pressure control my business, control my offerings more than they should, or reduce my margins. I prefer that my business controls things, rather than being controlled by external forces. Let it set the bar for other people's offerings, control what they can charge, mess with their margins, if there's messing to be done.

If avoiding external price pressure became impossible, I would probably wind up the business and get into a market where I was needed more. I've always thought this... I hate doing things exactly the way everyone is doing them, and things that everyone can easily do. Those are the boring things. The low profits make me feel unappreciated :< Possibly just personal preference, but that's part of my perspective.
 

advantagecp

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@advantagecp
If avoiding external price pressure became impossible, I would probably wind up the business and get into a market where I was needed more. I've always thought this... I hate doing things exactly the way everyone is doing them, and things that everyone can easily do. Those are the boring things. The low profits make me feel unappreciated :< Possibly just personal preference, but that's part of my perspective.

Rabby, I agree with most of your premise, especially what I quoted here. I never want to play on a level field. If it is not tilted in my advantage them I am looking for another field.
 

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