Is your price too low?

Pricing strategies are a challenge … especially in today’s hyper-competitive and transparent marketplace. Using price to induce trial is a subset of an overall pricing strategy. Many people believe that you can make an “offer they can’t refuse” to induce trial. This is, of course, true and depends on factors such as barrier to change, risk of change, ease of trial, etc.

My experience and research over many years suggests that trial can be induced in a majority of situations by offering a discount of 20%-25% off the price the customer is currently paying. This seems to be the price point which creates an “offer they can’t refuse” to at least try. In truth, if a competitor of yours is offering such a price point, you can be reasonably sure many of your customers are at least trying. Defection may or may not result depending on the results of the trial, ongoing pricing, barrier to change, etc.

Some people believe that a lower trial price might be even better. In my experience this is not usually true. That is, if you offer 50% off (or more) you will likely get fewer trials, not more. Why? It appears people are concerned that at that price point the offering may be significantly inferior to what they are currently using. A 25% discount seems credible, a 50% discount seems incredible.

And there are exceptions to every rule. Today’s example is the Dollar Shave Club. A YouTube (3.5M+ views as of today) and market sensation (you can’t even get signed up until late May) founded by “Mike.” He offers unbelievable savings on razor blades. While even his namesake $1/month blade program costs more than that when you add shipping, and he has two up-sell programs, his pricing is “unbelievable.”

How can he sell useful product of this category for so little money? Is the product just “crap?” Not according to at least one reviewer. And it does not matter anyway. Why? Because the trial investment is so little that you can self-evaluate with little risk. If the product works for you, you win. If not, you are out a few bucks. And his ad is hysterical. Rick Broida, first pointed this ad out to me by asking, “why can’t all ads be this good.”

Is your price too low? While there are some rules, there are also exceptions to those rules.

Mitch

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