Why you don't want to have the cheapest price
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You have probably heard how important the price of your product or service is - more than once, in fact. But factually, it turns out that the price may not matter as much, and that you actually shouldn’t spend too much time cheapening down your offering. It just might me the most appropriate idea to keep your product at a moderate price. How on earth does that make sense? Glad you asked.
The Profit-Cost Cycle and Consumer Psychology
There are several different reasons why you don’t want to offer the lowest price in the market. The first thing that occurs to most people is profit, so let’s cover that first. Profit is the (expectedly lucrative) sum ventures make with all expenses removed. Profit is the bottom line gain. Offering low priced products is known to result in declined profits. This is the very reason for the price of consumer products not simply plummeting downhill. There has to be some sort of profit, otherwise there’s no reason to sell the product.
On the other hand, shopping sprees like the US Black Fridays sound enough of a convincing element that products or service with a lower price tag are likely to be sold more (same reason why over-priced products are eventually dumped by the intelligent consumer-base). This is partially true - a customer is least likely to go out of his or her own way just to purchase something that costs more than usual.
There is yet take on the problem, an aspect that has not been yet expounded and that is where the second argument comes in.
Offered Quality and Shadow-Cost Analysis
Offering a product cheaper than the market price might lead the customer to analyze the shadow-costs inherent with the purchase. It is much possible that having a cheaper price will cause customers to buy your products more. However, there’s another side effect of having a cheap price. Sometimes, if you’re selling the cheapest product, consumers will purposefully buy a more expensive, but same quality, product. Why is this? It’s more psychological than anything. Over time, ‘cheapness’ has become associated with ‘low quality.’ There are tons of extremely cheap products out there that are basically knock-offs of high quality brands. You don’t want consumers to associate your business or products with cheap, low quality knock-offs.
What’s the Solution?
You want to have a cheap price that draws in consumers, but you also want them to buy your products without expecting low quality. How can you achieve both of these? First of all, put emphasis on the quality of your products. Don’t skimp on anything. Allow customers to post reviews and ratings on your products. This is especially important for your reputation. Have a great customer support system, so that you can easily respond to any problems that clients may have with your products or services.
Balancing your Price
So, how can you know what’s too cheap and what’s just right? Well, make sure that you’re earning a reasonable profit. If you are, and you still think your price is too low, just check the market value of your product. If other people are selling for the same price as you are, or higher, then just maybe your problem isn’t price. Always make sure everything else about your business is smooth before considering the price, since how high your price is affects your profit. But just remember – cheap isn’t always best, for both selling and buying.
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