Looking out at all of the Black Friday holiday sales promotions, I came away with this basic conclusion:
You’re pricing yourself to death.
Let’s step back and think about when price matters. Price matters to the average consumer – B2B or B2C – under two very specific conditions:
1. The buyer doesn’t understand your value. If your value is opaque, if your value is unclear, price matters. Price becomes vitally important because it’s the only objective metric that the buyer has available.
2. The buyer doesn’t care about your value. If the buyer understands your value but doesn’t care about it, then price becomes important because you’re a commodity, and they want the commodity at the cheapest possible price.
This puts businesses of all kinds into a really unpleasant squeeze, a pressure to keep moving prices downward. Yet not all businesses face the same downward pressures. Take Apple, for example. There’s a ton of competition for mobile phones, for tablet computers, for desktops and laptops, but Apple rarely discounts and rarely adjusts pricing. Why? The average consumer who purchases Apple products understands the value of Apple, and the things that Apple values (design, ease of use, etc.) are things that the consumer values. Thus, Apple can remain more resistant to pricing pressure than its competitors, which is why it’s one of the most valuable companies in the world.
The thing about these two pricing pressures is that they can be remedied. You’re not just stuck in an inevitable price war. In the first case, if the buyer doesn’t understand your value, you have an education problem. B2B companies most often face this issue – they have products or services that are so complex that no one person really understands them, and as a result, no one can make an apples to apples comparison on anything other than price. Take, for example, email marketing services. If you don’t understand email marketing, then all of the companies in the space can pitch you every feature imaginable and none of it will make any sense. As a result, you’ll likely buy from the cheapest priced offering because it’s the only value metric that makes sense. If I or one of my competitors can better educate you, you can then make sense of the various offerings and understand why one is more valuable than the other.
In the second case, you have an alignment problem. You have things that you value that your buyers do not. For example, you may value having an immaculately organized retail store, but your competitor values having the lowest prices possible. If your audience, your prospects, do not value organization, then you are competing in a losing battle. You can either change your values to value what your audience wants, or find a different audience that places a premium on a nicely organized store and would never set foot in the retail disasters that are your competitors.
Unless you are making a conscious decision to compete on price and drive your competitors out of business while accepting incredibly low margins, price should be the last resort marketing trick that you reach for. Spend your marketing time and resources figuring out how to make your value more clear to your buyers and making sure that what you value is what your buyers value, and you’ll rarely have to reach for the price weapon.
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Great post Chris. Discounting is probably the fastest way to build a customer base – but it comes at a huge cost. IMO the biggest problem of this low-cost strategy isn’t the margins, but the quality of the customer. When you have a customer base who’s loyalty can be bought, they will abandon you as soon as the next person offers to reduce their prices by another 1%.
Once you have established yourself as a ‘cheap’ supplier, it is almost impossible to get out of that role.You will eventually be in a race to the bottom with your competitors.
I believe that we teach our customers how to treat us and what to value us for. If we can teach them that we offer value, instead of ‘cheap’, and that we offer experience and results, then we have the opportunity to build long-lasting relationships with them.
Good informative post. Thanks for sharing.
Your post really has me considering some services that fall into the second dilemma mentioned above. Do you and/or anyone else reading this recommend a resource that will walk me through a set of questions to improve my ability at communicating value to a customer?