Nov
02
Home Business Marketing: Should You Sell On Price?
No.
Really, you can stop reading right now and you’ll know all you need to know about this topic. If you would like me to beat you over the head with why you shouldn’t sell on price, please feel free to settle in. You may want to go get a coffee.
If the only way you can gain market share is by making your product or service cheap, your product or service sucks. Well, that or your marketing sucks but you probably don’t want to hire a marketing consultant because you think you can do it yourself. Fine. Do it yourself. You don’t need a marketing degree to market stuff. Just don’t market your stuff on price.
There are two problems with marketing your home business product or service as cheaper than others.
Loyalty. Customers who buy a product or service because it is the cheapest are not loyal. They will leave you like a high school girlfriend. They are the draft dodgers of shopping. You do not want them. Let them hide out in Canada. (If you’re new here, that’s funny because I’m Canadian.)
Remember the statistic? It costs eight gazillion times more money to get a new client than to retain an existing one? If your customers are always leaving, you’re always busting your ass to find new ones. This is not cool. The only way you could avoid having them leave is by being certain you can always, always, always be the cheapest. This leads us to problem number two.
Consistency. You can’t always be the cheapest. You just can’t. If you sell cheap pool cleaner, somebody might sell it cheaper. If you sell a lot of cheap pool cleaner, you can be damn sure somebody’s going to sell it cheaper. If they do this, you are screwed.
Or let’s say, for the sake of argument and because I like making ridiculous hypothetical statements, that nobody’s going to undercut you. This is the most implausible thing I’ve ever heard, but we’ll assume I’m wrong here. Let’s say you can always be the cheapest. Fine. You’re the cheapest. Nobody’s going to go lower than your price, you cheap slut, you. What if your supplier’s price goes up? Hey, look! You’re screwed again.
What if, after all of your marketing efforts, you have more customers than you know what to do with and you’re working every hour God sends for what amounts to nine bucks an hour? What if you decide that’s not exactly going to send your kids to college? Whoops-A-Daisy, you’re screwed once more.
Bottom line, selling on price is dumb.
But what if you have to sell on price?
Sometimes price has to be a motivator. Maybe you’re selling something really new and people don’t get it. Maybe you’re in a highly competitive market and you want to break in. Maybe you know your product kind of sucks and you can’t get away with selling it for more. Whatever.
If you must use price as a motivator, make it a side benefit, not your primary selling point. Everybody and their mother is talking about Teaching Sells, the new brain child of blogosphere wunderkinds Brian Clark and Tony Clark. Up until October 31st, they sold it for $97 without disclosing what the price would be after November 1st. They got over 800 people to sign up in something like two weeks. (It went up to $197, by the way.)
Were they selling you on the fact that it was only ninety seven bucks? No. We all know that properly implemented it’s worth far more than that. They were selling you on fear. You don’t know what the price is going up to. What if you can’t afford it when the price goes up? What if you can afford it but you feel like a moron for not getting in earlier? The actual price is pretty irrelevant.
Price-based motivation can also be dressed up as mitigation of risk. You know, the whole “try it for a month for only a dollar” thing. The customer doesn’t want to shell out thirty bucks for a subscription to something that is unknown and therefore might blow rocks. The product may be worth thirty bucks. The risk is probably not. The potential risk of dropping thirty bucks on something stupid is not outweighed by the possible benefits of what you’re offering.
High Risk = Low Conversion
If you want or need to slash your prices on something, sell not to their desire to save money but to their fear of risk. You don’t want your buyers buying because you’re incredibly cheap. Under these circumstances, you want them buying because they were thinking of buying anyway, and now you’ve eliminated the risk factor.
The first group of buyers are the “Attention: K-Mart shoppers” type. See “loyalty”, above.
The second group are money conscious. They’re not necessarily averse to your base price, they just might not want to give their credit card number to every yahoo with a merchant account.
Basically, don’t sell on price. It’s stupid.
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You are so wrong. (as our hero in ready to rumble says to the evil quickie mart clerk – BRING IT ONNNNNNNNN, squirrel nuts)
Except when you are right. For independent contractors selling a specific service, this is a good message. Being “too” cheap often undercuts your value.
For a general business argument though I don’t sit in the same camp. The question is one of business model. Not everyone should run their business the same.
Cosco – discount volume
7-11 – convenience
nordstrome – quality / service (& piano dude)
amway – affiliate / rev-share
itunes – vast choices
When I run into 7-11 at 2 in the morning because I forgot to buy milk and I KNOW julie will kill me cuz I thisi s the third time I promissed and got too busy, I’m am THRILLED to pay $7.98 for the same $1.99 gallon I buy at nob hill every two weeks. The fact is that there are many, many key business models out there that don’t and should not operate by the same rules.
Within the micro industry of contracting, I believe that is true as well. You pricing approach should match you business plan and position in the industry. If you have a rapid templating system and pump out consistent solid simple sites in 3-5 hours (a viable web business), cheap might be exactly the right model for your business.
If you build custom prototypes like we do, you actually get more business by pricing yourself higher as it implicates a level of quality required to achieve the goals of the client.
at least that my 2c
I hate that I cannot edit my comments to fix spelling. I hit submit by accident before fixing the issues – wonder if there is a pluggin for that?
Bring it on, indeed.
You are totally, completely, and absolutely right.
Except when you’re wrong. Like now.
There’s nothing wrong with being cheap. There’s a lot wrong with basing your business model on being the cheapest.
Let’s talk about Costco. Here in Canada, Price Club (the pre-Costco Costco) was doing just ducky. They were the cheapest. Everyone was happy.
Then Wal-Mart showed up.
Price Club started folding like a cheap tent and the big, bad Costco had to ride in on a white horse and save its ass.
Second, Wal-Mart and Costco do not market themselves as being the cheapest. They market themselves as having everything in one place. They also are cheap.
Third, Wal-Mart and all of their reasonable, hand-drawn facsimiles have really cool things called marketing budgets. The readers of this blog do not. Wal-Mart can advertise on TV, plaster their name all over flyers, and get themselves in extremely high traffic areas that people flock to anyway. While I am very rich and powerful, I don’t have that kind of budget, and neither does anybody else. Except Wal-Mart.
I like your example about the template business. I think that quick and easy templates is a very viable business. The problem is, if people are buying from that business because they are THE CHEAPEST, they can’t sustain it. Offshore companies can do it cheaper. The 17-year-old whiz kid who just needs to fund his XBox habit can do it cheaper. Eventually someone will come out with software that can do it for free.
Even on the off chance that none of those things happen, it’s not personally sustainable. Doing that much work is exhausting. At some point, you’re going to want to relax. In order to do that, you’re going to have to raise your prices. If you raise your prices, you’ll lose your customers and have to find more. Which causes you to work harder and therefore not relax. And so on.
P.S. I know you are but what am I? That’s my big Sunday morning comeback. Do you like it?
Mirror mirror on the way … who is the cheapest of them all.
Ok that is a tough problem. In fact it is one of the issues that seems to plague online commence. You can’t maintain any kind of reasonable profit margin if your goal is to be the cheapest. So I get your point and acknowledge the validity of your argument. Striving to be the cheapest is potentially harmful (unless you build me the $100 computer).
Thats different from cheap. A cost effective pricing structure for a mass production business is a usually the appropriate combo.
I’ll concede on cost-effective. I also want a $100 computer. :)
How about a free computer? A company could conceivably do that if they found a way to use it to advertise other’s products. Think about Google in this regard – practically all of the stuff that you use from them is free. But they make soooo much money from advertising.
Can you ever win against google on having the cheapest product? No.
Anyway, I have an example. I have a client that I work with, and he’s a nice guy and all. I met him before I left my full time job, and he kind of convinced me to go for my dream of my business. So that was good of him, gave me confidence etc. But, I ended up telling him I would do all his work for $50/hr, and that he thought (problem) that it would be a good business model to offer my computer/IT services for that cheap for everyone… I would have tons of business! Who wouldn’t want a tech guy for $50/hr?
Not me. And no one is going to get it from me. I’ve come to learn over time that he is a bit shady, and he wanted a tech guy for as cheap as possible. So I learned not to Sell on Price. I am worth more than that as a graphic designer and IT guy. So deal :-)
You tell ‘em, Andrew! In my next life, I will be Google. In this life, I’m Itty Bitty Marketing. Emphasis on Itty. And, um, Bitty.
Good for you keeping your prices at what you deserve.
Warren Buffet said “Price is what you pay, value is what you get.”
I was one of the ones who bought Teaching Sells … and I don’t regret it a bit. Because I know how good Brian’s stuff is, buying in at $97 (or even $197) is a great value.
- Dave
Dave! As soon as you know, I want the full scoop on Teaching Sells. If I had room on my credit card (ha!) I’d buy right now, $197 and all.
Great article! Agree with it 100%.
It’s been my experience that it’s the penny pinching client that is usually the hardest to deal with. And, because they are so focused on cost and getting as much as possible for as little as possible, they are also the hardest to please.
A few months back I bumped my prices up quite dramatically and I’m still getting the work. Better jobs. Better clients.
The only one that complained was the above mentioned penny pincher and I haven’t spoken to him since. And that’s actually a good thing!
Hi John – thanks for stopping by IttyBiz! I agree, penny pinchers are the wretched and the worst thing about it is that they are completely avoidable. In every circumstance I’ve seen, when the service provider ups their rates, they consistently get a better client base.
I think a lot of the reason is that people who are willing to pay higher rates have the money to spend. They’re not scrambling around trying to take cash out of their kid’s college fund and they’re not so emotionally invested.
If you see the penny pincher, tell him I say hi.