The Price is Right

The economy is down, but should your prices be? Many people think that this is an obvious “yes!” But this may not be a solution. Many entrepreneurs say that in an economy such as this,  lowering prices can actually hurt your company because it may be hard to re-raise prices when the economy picks back up. So I say stay consistent. Take Wal-Mart for example. They are known as THE low price store. This is why they never have sales. Yes they have “rollback” prices, but they don’t have store wide sales of “25% off this week only.” They know who they are and they stick to what they’re good at.

Getting Personal

So what should your company do? Many people have the preconception that customers either want high quality at a high price, or low quality at a low price. Until recent years, there has not been a middle ground due to this misconception. In their book “Mass Affluence,” Paul Nunes and Brian Johnson argue that there is a segment of customers in the marketplace that are not currenlty having their needs met. They either have to pay too much for a product that does more than they want (say a $100 electronic toothbrush) or an inexpensive item that doesn’t do enough (A normal $2 toothbrush). A solution to this is a middle-of-the-line electronic toothbrush for around $10. Consumers wanting more functionality but not top of the line will finally have their needs met.

Raising the Bar (and Price)

In America, in order to avoid having to compare too many options, many people have created a shortcut when purchasing items. This shortcut is “expensive = good.” This is great for merchandisers. A good example of how retailers can cash in on this is told by Robert Cialdini in his book Influence The Psychology of Persuasion. Cialdini one day receives a phone call from a friend who owned a jewelry store. A certain type of jewelry was not selling well so she informed her head saleswoman to sell the jewelry at “price x 1/2″ (The owner was going out of town so she just left a note). The saleswoman misread the not and accidentally sold the jewelry for twice as much. When the owner returned, every piece of jewelry that was increased by 2 was sold out. Why? People used the shortcut of “expensive = good.”

So What?

The so what for this entry can be taken in many different ways, and I would suggest that each company take an individual approach to pricing. Many people think “sales are down so I should lower prices.” This can’t be more wrong for companies who are trying to differentiate themselves with quality. I’m not telling you to do it, and can’t be held responsible if sales decrease, but you might want to consider raising prices instead of lowering them. It just might surprise you.

-Austin