What does this pricing strategy say to you?

We use an on-line vendor to provide extranet services for our clients.  We've been with them for over five years.  We recently discovered a better, cheaper solution.  It wasn't the cheaper that sold us.  It was the ease of use for our clients.

But cheaper doesn't hurt.  And this was cheaper by a couple hundred dollars a month.

When I contacted the old vendor to cancel our service, guess what their immediate response was.

"We can match their price."

What?  So you've been overcharging me for years?  Or you magically just had a price reduction to the very dollar amount of my new vendor and you were about to call and tell me about it?

Talk about leaving a bad taste in my mouth.

Dropping your price to keep a customer is never a good strategy.  It can only make you and the client both feel taken advantage of and in the end, no one wins.

Your pricing strategy is one of the key components of your marketing message.  It speaks about things far beyond your cost.  It communicates value, customer attentiveness and how you view the relationship, both short and long term.  It's not something you should just stumble into.  And it's not something you should damage by mishandling a situation, like our old vendor did.

There's an interesting couple articles over at Marketing Tips from the Trenches about how to think through a pricing strategy and how to test it.  Worth a read.

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Comments

[Lewis Green]

Drew,

Great post! Every business should read this. Often my clients ask about pricing. Usually, I tell them they are under-priced, because they are selling cheap instead of value. However, my caveat to all who sell value is to give your customers your best and fairest price, and don't lower it unless you are conducting a special offer campaign (and offer that campaign to current customers, as well). Once we lower our prices to keep a customer or get a new one, everyone who paid or pays the higher price feels as if they are being cheated.

[Terra Andersen]

From starting businesses, this is the number one thing I have learned. It also is a great matter of percieved value. If BMWs started selling around the same price as Kias... I'd imagine the previous BMW owners who paid full price for their cars would be pretty upset! Sometimes, I feel more comfortable paying more for something.. it usually means that item or service was of greater calibre than most.

[Copywriting Maven]

Drew, how would you have replied if the old vendor asked, "What can we do to keep your business?"

[Drew McLellan]

Lewis,

Thank you. I think many business people are a little embarrassed to suggest they are worth more money. So they undervalue themselves. And then wonder why their customers are so price conscious. Only because they were trained to be!

Drew

[Drew McLellan]

Terra,

That's exactly how I reacted. I immediately was angry because it suggested to me that they'd been over charging me all this time.

Pricing becomes a very key component of how you implicitly and explicitly communicate your brand promise and value.

Drew

[Drew McLellan]

Roberta,

I would have answered -- "You can't. But thanks for asking."

I would have felt much better about them and their pricing integrity if that' show it would have played out.

Drew