You don’t need a PhD in Economics to understand supply and demand. If you want to increase sales you lower prices. If you’re getting more business than you can handle, raise your prices.

Even a six-year old running a lemonade stand knows this.

And from the current financial news no doubt you’re worried about sales and wondering if perhaps you should lower your prices to give people a little extra incentive to buy.

But there are some good reasons not to do this

The obvious reason is the hit your bottom line will take. Unless you have financial reserves, lowering your price is, at best, a short-term strategy.

The less obvious reason is lack of perceived value and it is this issue that holds the greatest opportunity as well as the greatest threat.

The Importance of Perceived Value

Take a few moments and think back to a purchase you made for which the value was so big and obvious that the price seemed more than justified.

An example from my own life was many years ago when I decided I wanted to make a career change and pursue desktop publishing. At the time, if you wanted to do anything serious with graphics you used a Macintosh and the Mac I wanted was way more than I could afford. But I wanted that computer with all my heart and I proceeded to do something which would seem to many people the height of foolishness. I cashed my savings bonds (the ones my grandparents had been giving me since I was born) so I could buy the Mac and an Apple Laser printer.

I had to pay some hefty tax penalties for cashing out the bonds and I was living pretty lean for a while but I loved having that computer and I loved learning about desktop publishing. As far as I was concerned the value I got from having a computer and some good desktop publishing software far outweighed the cost.

What’s important to remember is this: when perceived value is strong enough, people will go to great lengths to buy. The implication here is that when someone decides “it’s really important to me to have this,” they often find the resources.

Does this mean price isn’t important? Of course not. The term “great lengths” is relative. But in my experience if you don’t do a good job communicating the value of what you sell to customers, you make it easy for them to say they can’t afford it, don’t have the time, etc. etc.

So this bring up the question, how do you improve the perceived value of your products and services?

Increasing Perceived Value

One of the best ways to increase perceived value is by changing your focus from product to solution.

Great example, one of my clients recently wrote a book on small business loans. Initially he priced the book at $29 and was discouraged when he realized he’d have to sell an awful lot of books to even pay for the printing. So I suggested he rethink what he was really offering and consider creating a program around helping small business owners optimize their chances of getting loans. The book would be one component of the program which would include teleclasses, one-on-one coaching, a quick start guide, forms, and templates. Shifting the focus from product (book) to solution (getting the loan you want) increased the perceived value of his offer and enabled him to increase his price significantly.

This is different from a tactic I often see where you buy the book and get a gazillion free guides, audio recordings, ebooks, etc. Doing this does NOT improve perceived value. The main reason is the add ons are rarely part of an integrated solution and it is the time and effort you’ve taken to synthesize the materials that creates the real value.

Even worse, when I see offers that include a ridiculous amount of extras, it can feel overwhelming to try to figure out what’s useful and what’s not. It feels to like the owner is saying, “I can’t be bothered to figure out what is useful or not so I’m going to send you everything and you can figure it out.”

Confusion and overwhelm is not something most people value. In fact it usually has the opposite effect and cheapens the perception of what you’re offering.

Bottom Line

When times are tough and money seems scarce it’s very tempting to lower prices as a temporary measure. Before you do, take a moment to see if you can, instead, improve the perceived value of your products and services. It’s possible to avoid price cuts…even actually increase your price if you understand the value your customers are getting and what it is really worth.

This entry was posted on Wednesday, November 12th, 2008 at 1:33 pm and is filed under Marketing Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.