This article describes why entrepreneurs should never set their product pricing too low.
There’s a TV program in the UK that teaches people how to shop. No seriously! Apparently, there are thousands of people in the UK who are paying way more for their shopping than they need to. The program is called ‘Eat Well for Less’.
The premise of the show is this. The presenter and his sidekick descend on a family and perform an autopsy on their food purchases and buying habits. They then replace some of their favorite products with lower-cost substitutes. The key to the program is that all of the food products then have their branding removed.
The family tuck into their meals not knowing whether they are eating their favorite brand or a cheaper brand. At the end of the show, the family is asked to identify which foods were the alternative and which were still their favorite brands. The products that were replaced with the cheaper alternative are revealed and a total saving is calculated.
You see, the entire program is based on teaching people that cheaper alternatives are not necessarily inferior alternatives. It teaches stupid people that price is not necessarily an indicator of quality.
Thankfully for Evil Marketers, the perception that price actually is an indicator of quality is widespread.
When consumer goods company, Procter and Gamble tested different price levels for their new Olay Total Effects cream, the results were surprising.
They field-tested 3 different prices: $12.99, $15.99 and $18.99.
Unsurprisingly, the $12.99 price appealed to drug store shoppers. The mainstream response was good, however, sales were poor among people who regularly shopped in department stores.
Sales at $15.99 were low across all demographics.
But sales of the cream were highest at the $18.99 price mark. Department store shoppers read the price as credibly high and drug store shoppers read the high price as an indicator that the product quality must be far more superior to the other products on the shelf.
For Online Marketing, it’s important to price test your product or service.
When you are starting out it’s very tempting to set product pricing low in order to generate some sales traction, however, you may be underselling yourself, and sending quality signals that you don’t want. And remember, the effort to sell a $97 product online is actually the same as it is to sell a $47 product!