Price Is Not A Value PropositionNovember 18, 2010
Whatever you do, don’t slash your prices. Price isn’t a branding proposition. Or as we used to say in advertising, “Live by price, die by price.” The minute you start offering sales, everyone is going to expect you’re lower price to be your forever price—don’t go there.
Retail sales of “70-80% off” build traffic—even a feeding frenzy—of customers who swoop in like vultures to buy the clothing carrion. Stores look painfully customer-empty when the sales are over and new merchandise comes in. Customers are waiting for the next meteoric drop in prices to make their move. And the damage you do isn’t necessarily restricted to sales. Less than a year after Apple introduced the iPhone, they dropped the price by $200 in order to boost their year-end numbers. The uproar from the early adaptors who’d paid top dollar was loud enough for Apple to agree to an embarrassingly public give-back to the first-round owners.
Tinkering with price can produce grave long-term consequences. Subway did a highly successful “$5 Foot-Long” promotion and saw store traffic plummet when the promotion ended. The promotion came back—and it’s a baseline price they might have to live with for years to come.
It will be somewhere between difficult and impossible for many retailers to claw their way back to standard pricing and needed margins. So be cautious if you’re thinking about changing your price.
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