When the price is NOT right


When is the price NOT right?

When a customer says, “the price is too high”, the first reaction from a sales person, product manager, or business owner is likely to defend the price. If the price includes a fair markup + the cost to build or acquire the product, then the business owners is right to feel justified about the price.


So, whose right? It depends:


Question: Does the product meet the functional and emotional needs for the customer BETTER than a competing product?


Answer: If the answer is NO, then the product may appear too high. If the answer is YES, then it may be that the communications and marketing for the product are not highlighting the differentiating value.


Let’s look at an example:

Store X sells an updated toaster* for $100, which is now $30 higher than the nearest competitor. Sales fall by 40% in the first 3 months. Customers are not willing to pay for the pricier toaster.


*The upgraded toaster has a new feature that prevents the toaster from overheating and has a larger capacity for handling thicker slices of bread and bagels. The manufacturer promotes the larger capacity feature in their packaging and advertisement.


- From the customer’s perspective, the price increase is not justified. They don’t see the value in the new toaster.


- From the store owner’s perspective, the toaster is far superior to the competition, since it reduces the risk of fire.


So, both are right. In this scenario the store owner has to spend additional time and possibly marketing costs to overcome the lack of feature promotion.

The issue comes down to communication. The solution falls upon the store owner to overcome the gap in the marketing to help the customer understand WHY the upgraded toaster is worth the upgraded price.


Unfortunately, this additional burden on the store owner requires an investment in marketing and advertising of nearly $3 per toaster, which reduces the margin for each toaster by 30.


So, in the end, the price is NOT right for either party.

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