When was the last time you entered an Armani store and complained about the price? Did you gasp at the price of the alligator loafers when the cashier said “that will be $679.37?” Unlikely. Everything we purchase has a perceived value by each and every one of us. If your business is suffering from a lack of sales, it could be that you’re not charging enough.
You did not misread that. You may not be charging enough. We are all consumers whether we ourselves have businesses or not. We have a need for products and services. Everything we purchase has a pre-determined expectation of price whether we realize it or not. This preconception derives from advertising, lifestyle, self actualization needs and our spending power among other things. These elements combined create our consumer psychology and how we perceive value. If it’s too cheap, we don’t value it. We have been conditioned to know when something seems to good to be true. As a result, we move on to a product that has a seemingly higher value simply because it cost more or simply because the next item is more in tune with our expectations.
Consider this scenario. You are shopping for a new car. You’re noticing that with all the options you want, this car is averaging around $32,000 at every dealership you’ve gone to. You have determined that based on your search that this is the average everyday price for this vehicle. When you decide to take the plunge, you discover the exact same make and model for $20,000. The dealer assures you that the deal is authentic and that the car is every bit as good as the $32,000 car you’ve found. Yet, you’re apprehensive because you know that if it sounds to good to be true, it probably is. Whether you purchased the $20,000 car or the $32,000 car doesn’t matter. This scenario proves that you’ve made an association between value and price. We all do it whether or not it is conscious or sub-conscious. It doesn’t matter if the $20,000 is good deal or better than the other or vice versa. The point is recognizing that your own research has conditioned you to accept a certain value/price condition for a specific good as an accepted norm.
The counter argument comes from the coupon shopper, those that hunt for bargains and feel that most things are overpriced. The value/price psychological association does not negate the argument that most things are overpriced. The emphasis here is on value perception as a consequence of how an item is priced; the psychological component and not necessarily the budgetary component. Therefore, the counter-argument is a fallacy that has a poor correlation as it pertains to budgetary and financial aspects of goods and not how it pertains to perceived value.
Microeconomics emphasizes supply and demand as determined by the scarcity of goods. It explains quite effectively how prices may effect quantity supplied and quantity demanded. Yet, it does not emphasize enough the effects of perceptive value as a consequence of media conditioning via branding and advertising. That lies in the purview of marketing specialist using statistical data derived from surveys, product movements, pricing and ROI among other things.
A hard line economists would rarely advise raising prices to boosts sales. However, a marketing specialist may based on market analysis and the effects of consumer psychology and branding initiative as it relates to a particular product or service or an organization’s overall value proposition. If your product is priced too low and creates a perception of low value then you may be attributing to low demand yourself. If your product is priced too high you create the same situation but with a label of being too expensive. Yet, the latter is the scenario most often blamed for weak sales. If you don’t value your product enough to price it appropriately then how can someone else value it enough to purchase it.
If you’re entering that Armani store then you have a sense of what to expect of the price despite what the quality may or may not be. You are conditioned to know that such an item carries a premium price. A frequent Armani shopper isn't necessarily interested in coupon clipping. They likely don’t care if the item is on sale or not. However, if a $679.37 pair of alligator loafers is now $150.00, then Armani will have damaged their brand and created an environment akin to a closeout bargain warehouse, thus negating their high end stature as a premium clothier and accessory provider. Armani would much rather ship that product to an actual bargain warehouse not bearing their name to closeout slow moving or discontinued inventories.
You may believe you’re gaining more business by cutting your prices to barely above your costs and operating levels. What you're likely doing is working twice as hard while diminishing the demand for your product because you’ve undervalued the service you’re providing. It’s a particularly tough pill to swallow when all your competitors are dropping prices to boost sales. Yet, you notice many of them struggling to keep the doors open despite having significantly increased their foot traffic for a short time. It is a false recovery. Many flock to a great deal at the start. But in the end, as the diminished perceptive value of that good or service kicks in, consumers eventually abandon it for a product infinitesimally varied, that carries a slightly higher price and you’re left wondering why the most basic, often misinterpreted, lesson of economics has failed you - the often misused lesson of lower your prices and they will come.
No comments:
Post a Comment