Lowering the prices of products and services is a common strategy for people who want to get more sales. While lowering prices can be a winning strategy at times, it’s not without its pitfalls.
Lowering your price can be dangerous. It can damage your brand and actually lead to lower profits. It could also lead to customer relations problems.
Here are some of benefits and drawbacks to lowering the prices of your products or services.
==> Benefit: More People Will Buy
The most obvious benefit to lowering your price is that you’ll attract more buyers. There are people who will buy at a lower price point that wouldn’t buy at a higher price point.
This is almost always the case, although sometimes a higher price will actually induce more sales. If you’re targeting a market for whom price is not a main concern, lowering your price could actually reduce sales.
In certain markets, people want to buy from premium dealers rather than the cheapest option.
==> Drawback: It Could Anger Past Customers
Lowering the prices of your product or service could anger customers who have already purchased at a higher price.
How would you feel if you bought a computer at Best Buy for $600, only to find out the next day that Best Buy lowered the price to $400? You’d probably feel ripped off.
Amazon deals with this issue proactively. They issue refunds to all past customers of products when they lower the price, without the customers having to ask. In other words, if you buy a CD for $10 and they change the price to $5, Amazon will pay you $5 without prompting.
There are ways to handle the customer relations issue, but it could cost money and take time and energy.
==> Benefit: Helps Launch New Product Lines
Lowering prices of new products or even existing products can help launch new product lines.
For example, when Apple launches a new iPhone, they almost always lower the price of the old iPhone. This helps purge old inventory, while promoting new products as better and more innovative.
Launching a new product at a lower price to be raised later can help create a surge of initial sales. Lower prices used in this way still position the product as valuable, but lowers the price for a special occasion.
==> Drawback: It Can Affect the Brand
Make sure you consider your brand whenever you lower the price of anything. Lowering your prices can result in your band being perceived as cheap or low quality.
Again, when it’s done on special occasions you can skirt this issue. Also, some brands actually want to be positioned as the low cost provider.
However, if quality, exclusivity, premium or class are words you want associated with your brand, you need to carefully examine whether or not lowering price will damage how the world views your overall company.
These are some of most important benefits and drawbacks to lowering the prices of your products or services.