7 PRICING MYTHS

Businesses owners recycle old myths about their businesses and their industry in an attempt to simplify and understand their own circumstances. But the myths will not bear much close scrutiny. Here are 7 de-constructed myths.

1. ALL my competitors buy better so they can sell cheaper; and that explains my poor sales.  

This is a trifle unlikely. Globalization of supply chains has made it simple for even small store owners to source the best. The suppliers play games, of course, with volume discounts, rebates and other sales devices to push up sales.  But, to blame the supply chain for poor sales performance is a red herring that deflects attention from other business problems.

And a final comment – Why is cheap the only measure of value you offer your customer base?

2. Business owners deem that 45% of the time, price is the most important factor influencing a sale. Customers, by their own admission, go to a competitor because prices are too high, only 25% of the time. Quality and customer service rank higher in the customer mind when deciding whether to buy a second time from you.

3. Every customer who says we are too expensive, is RIGHT.

There are customers for whom free would be too expensive. Remember too, that sticker shock can be a buyer’s strategy to get you to lower your price.  There are some customers who buy on price alone but they need to be gently pointed in the direction of a competitor.

4. If sales drop, then it is the fault of high prices.

 Really? Wouldn’t industry figures indicate a general contraction of the entire industry, particularly during a recession? If market share remains the same, then price is not to blame.

5.  Yes, but!  If you look only at a few select items, to the exclusion of others, then my prices are bad across the board.

 It is unlikely that all prices are poorly positioned. Most regular buyers of a particular product or service can recall 10 prices alone. That appears to be the maximum number of prices we can remember and  only through constant reinforcement.  So, in a store selling 1000 items, 990 things have no comparable in the mind of the buyer.

6. My costs are the only factor to determine prices.

 Prices are determined by a whole host of factors NOT related to costs. Among them are: volume discounts; 30 days to pay; free delivery; free installation; free support; and free add-ons. These factors drive up costs but are not reflected in pricing.

 7. Being the cheapest price is the only factor that influences a sale.

 This cannot be true. With items of fashion or taste, higher prices are associated with better quality or social standing. There are cheaper sneakers than the ones demanded by teenagers so that they are “cool” in their social circle. And diamond rings would not be the symbol of undying love if they cost $4.95, right?

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