A strategy that sets your prices on the low side might seem like a good way to drive sales. After all, won’t customers be attracted to the brand with the cheapest prices?
The truth is that while lower prices can attract customers looking for a deal, they can also create a situation where people believe your products are “cheap” or “low-quality.”
“Many businesses mistakenly underprice their products attempting to convince the consumer that their product is the least expensive alternative hoping to drive up volume,” says small-medium business (SMB) consultant Laura Willet. “But more often than not it is simply perceived as ‘cheap.’”
Research from Vanderbilt University shows that while consumers often equate lower prices with “low quality,” they can also perceive low pricing as a sign of “good value.” Since consumers can adopt either perception, the question for business owners should be, “How can I lower prices and capitalize on the ‘good value’ perception without drawing the ‘low quality’ stigma?”
It turns out that how consumers view lower-priced products (“good value” or “low quality”) has a lot to do with how they are marketed. In the Vanderbilt study, a group of participants was introduced to bottles of wine marked at different prices. When the participants were subtly reminded of “quality” in the initial marketing, they preferred the more expensive wine. When they were subtly reminded of “value,” however, they opted to go with the cheaper wine instead.
The takeaway here is straightforward: it’s okay for your pricing strategy to include pricing products lower than your competitors. But if you go this route, be sure that your messaging emphasizes the value or “good deal” people get when they purchase with you.
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