I was talking with a customer the other day about a new service his company has developed. It’s innovative and profitable, and they have found ways to reduce a lot of their costs to make it even more profitable. The customer asked when, “ethically”, he had to lower his price. As if answering his own question, he asked me to consider what would happen if Apple had to spend $50 on an iPad case, then had a magic fairy to create the insides of the iPad for $0 cost. When, “ethically”, would they have to lower their price?
I mentioned that Apple does not price based on their cost (the 3G iPad includes about $5 worth of extra parts and costs $130 more than the Wifi-only model) and that in the hypothetical scenario, Apple would lower their price if and when they felt the market alternatives made that necessary. In other words, the magic fairy was irrelevant. (It’s also worth nothing that Apple doesn’t build the things anyway, they have offshore labor build it for them.)
This seemed to resonate. But I wanted to ask some more questions.
“Are customers raising issues with the price?”
“Are prices slowing down or reducing sales?”
“OK, we’ll talk about price increases in a moment.”
Seriously, folks– never limit yourself on pricing. If the market thinks your prices are too high, they will tell you. If they do, that’s a good thing, it shows that you’re at least in the right ball park. If you never get a price complaint, you aren’t doing it right.
Rebuen, interesting post. I agree.
An additional point to our fellow pricers, aside from the market “telling” you, one will know if prices should be lowered if there’s a true loss of differentiation between your products/services and the competitive offering vs. increased customer negotiating leverage. Other factors one should consider are what type of customer or ‘buyer’ are they ie., value-buyer, price buyer, etc., But then, that’s another whole discussion!