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Desperate makes us both feel cheap (pricing strategy)

October 5th, 2012 · 6 Comments · Business owner/leader stuff, Psychology

Your pricing strategy should never be accidental.  It’s a vital element in your marketing mix.

Let me give you an example:  We use an outside vendor to provide extranet services for our clients.  We’d been with them for over five years.

We recently discovered a better solution.  Not only is it better, but it’s also less expensive. It wasn’t so much the fact that it was 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?

We’re still leaving but now, instead of feeling a little guilty about leaving our old vendor, I’m feeling a bit used. If they’d valued our business – why didn’t they offer us this new price while we were still their customer?

Talk about leaving a bad taste in my mouth.

Dropping your price just to keep a customer is never a good strategy.  It makes everyone feel a little cheap. In the end, no one wins and you can kiss any sort of recommendation goodbye.

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.

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6 Comments so far ↓

  • Caleb Page

    Too funny – I just blogged on pricing strategy today. It sounds as if your experience is more a pricing tactic than strategy.

    What’s your recommendation as to how to handle things when a customer is overpaying because the cost of services have gone down over time? I hate to give up the revenue but struggle with a way to keep the pricing relationship right with the customer.

    • Drew McLellan

      Caleb,

      I think the strategy is you give up that incremental income to make a lot more money over time. MAke a big deal about the fact that you’re actually lowering some aspect of your price but also offer them new options and add ons. I think over time they’ll stay longer, be more loyal and tell everyone that you did it.

      Drew

  • Patrick Albanese

    Drew:

    Here’s another concern when you operate this way.

    After you’ve told your client that you can match the competing offer, all built up trust is destroyed. So the question becomes, “Now that I know you’ve been overcharging me for years, how can I be certain that you’re still not sticking it to me?”

    In car sales, they are told to say they will meet and beat any offer.

    After a few back and forth competing offers, a customer has no faith that anyone is honest any more.

    All you are left with is a customer who gets a gear deal, but knows that all along you we’re trying to extract a lot more from their wallet.

    If pricing is flexible, then trust will be hard to establish.

    • Drew McLellan

      Patrick,

      Exactly. It’s basically saying “we’ve been taking advantage of you all along but now that you’ve backed us into the corner, we’ll give up a little margin.” That trust will never be re-built. As opposed to saying to a client “boy…we’ve got new technology or a process etc. that means we can save you a little money, so we’re reducing your bill by 5%.” Now that piles on the trust!

      Drew

  • Jose Palomino

    Great anecdote — but also a little sad in that it’s all-too-common. There is not enough written about pricing strategies. So often, we — as marketers — are focused only on branding and social media and let pricing fall into last place. It can’t. We need to be more proactive about developing strategies for placing prices — and I believe the starting point is as simple as identifying both the ceiling and floor prices for your product’s category.

  • Max

    Cost vs. Service is one of the forms of value added has had more success in the consumer economy, but in countries where purchasing power is low this strategy can have no effect because people want as cheaply as possible, trying to eliminate value added.

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