True or false: Under pricing your product or service can hurt your bottom line and damage your brand. Answer: It depends.
Reducing the price customers pay for your goods may seem like a surefire way to achieve certain business goals – such as growing market share or achieving a “network effect” (when increased awareness boosts the value of your product).
But lowball pricing is generally not a sustainable strategy. Customers may think low prices signify poor quality, and once you cut prices it can be difficult to raise them.
So when setting prices for products or services, consider the following:
- Who are your target customers?
- How often is your product shopped?
- Who are your competitors? What are their pricing strategies?
- What external factors may impact demand for your goods?
- What actions will competitors take in response to external factors?
- How is your brand perceived in the market?
- What’s the relationship between price and the perception of quality in your sector?
Getting into a price war with competitors is risky, but there are some smart ways to reduce pricing: cut prices incrementally or bundle additional services into the price.
It can be difficult to recover from a pricing blunder, so it’s important to know your customers and the full cost of producing, marketing and selling your products.
Keep your eye on the prize – your revenue target. Cheap doesn’t always get you there.