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Why The Lowest Price Mentality Is Costing You More

Category: Business Growth

Written by: Jessica Hicks

Posted on: August 30, 2018

Whether you are a large or small business, B2B or B2C, there are typically two types of business owner mentalities: a bargain broker or a value enthusiast. All businesses aim for financial efficiency, but one will aim to maintain value over profits and the other may cut its lifecycle short by pinching pennies.

The traits of a bargain broker are usually focused on cutting costs wherever possible: payroll, expenses, operations, product, or good. A value enthusiast is more likely to seek value in all aspects of their business. Spending on culture, investing in mentorship, and standing by their product. Their focus is not just adding value to their customers, but creating internal value to their company and team.

Offering Your Product at the Lowest Price

About a month ago, a new pest control company came to my door for a service offering. The salesman was extremely nice, friendly, and informative. He instantly earned my trust. Surprisingly, my husband and I were in the market for a new company due to a lack of efficiency and job completion. We would come home after a service to find cobwebs still all over the house, side gates unlatched, and an overall feeling that the service we were paying for was fairly sloppy. This new company could not have approached me at a better time. What interested me the most was the scope of work that was being offered. They would not only expand the scope of work, but their product was kid and pet friendly. I found immediate value and was ready to make the switch regardless of cost.  

However, something happened during this sales pitch that pushed me off from hiring this new company all together. During the sales pitch, the friendly salesman asked for my billing information. I told him I was comfortable paying their service fee and setting an appointment, however, I would need to tell my husband the details before handing over our card. I told the salesman we would call the next day to move forward and schedule a weekend appointment.

Now, instead of respecting my need, the salesman switched gears into the, no good, old fashioned car salesman pitch, lowering the cost to almost half the price. This immediately set me off. I kindly repeated myself, but all the while maintained a conversation in my mind, “I can’t believe he just did that.” I lost all trust and began to question the value of the products and services he was offering. After my next reproach, he pushed harder and lowered the price once more. Clearly he was no longer listening to my needs. Unfortunately, I had to dismiss the opportunity to work with this company. It was an immediate turn off and an extreme disappointment.

Too often I see companies lead with a sales pitch, or try to close a sale too quickly. What ends up happening, is they train consumers to believe they are the, “cheap” brand. Instead of nurturing customers to remain loyal brand advocates , businesses often push away those looking for a viable product or service only to bring in a breadth of bargain hunters. “You reap what you sow.” It is not always about price. If you have a valuable product that is worth the investment, consumers will buy.

Pricing Psychology

pricing-psychologyAs a business, you can strategically position your company to add value in price without sacrificing your credibility. Neil Patel published an insightful blog post on pricing psycology. Within the post he goes on to credit, Dan Ariely, a pricing economist. Dan’s research focuses on exploring how people correlate price and value, and ultimately, how it dictates their buying decisions. In one of his studies he provides examples of a 3 point pricing subscription, where consumers can make one of three choices. They are given a list of inclusions, along with price, with one price unidentifiable to the next. The price in the middle, while seemingly “useless” in that it doesn’t provide any value, is actually an important price for structuring the lower and higher end option.

The most fascinating piece to his study, is that if you understand how to position your pricing, you can ultimately create consumers that are “value enthusiasts” as opposed to “bargain hunters”. If we aim to not only train ourselves to offer value, but to require value from our buyers, then we are creating a business built for growth and longevity.

Expecting the Lowest Rate

Perhaps you have a production expense in which you are required to purchase materials to create your product or service. Very often, brands start out using or offering very high end products. Over time, and to increase profits, low grade, “cost saving” materials replace the high end products. If the change is recognizable to the consumer, and gives a perception that the company is pushing profits, then it becomes very easy for the consumer to feel devalued and cheated. Making a change solely based on profit is a sure fire way to lose loyal brand supporters.

Cases where this could potentially benefit a business, are when changes are focused on the greater good. The change was made to reduce waste, pollution, animal cruelty, or environmental harm. The change has to be clear, and has to be at the forefront of your marketing efforts. Creating a culture around an environmentally friendly business model can be an absolute win for your business strategy.

Another form of product cheapening happens when penny pinching vendors. Businesses that seek the lowest priced vendor or make the switch to a lower priced vendor often sacrifice relational quality. Instead of gaining mutual respect, or relational empathy, both parties are fully aware that their business partnership is purely based on price. This changes the psychology of the business owner, to always be on the hunt for the cheapest cost, or to always ask for the cheapest cost even if the cost of product production increases. You not only sacrifice the value of your own product, but also take away the profitability of your vendor partner; which could create an unbalanced and resentful business relationship.

Adding Value to Your Business

Having the lowest price mentality will cost you your brand, your credibility, your relationships, and your longevity. As a business owner, you should aim to add value in all facets of your business. Respect your consumers and dignify your product so that your focus is to continually enhance and not diminish your offering. The most successful companies emphasize the value of their: culture, products, experiences, and partners. Don’t let the bargain broker mentality break your business, instead, be a value enthusiast and thrive.

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