Why Advertising on Price Alone is Often a Bad Idea
People like to say that money talks. Everyone assumes that consumers make buying decisions based solely on price. So, a lot of companies fight tooth and nail with their competitors to drive their prices down as low as possible.
But think about this. If customers made buying decisions based on price alone, why do more people by Coca Cola than Big K Cola? Why do more people buy Hellman’s Mayonnaise than the Target generic brand of mayo?
The truth is that it’s not usually about price. It’s about value. People will often pay more if they feel they’re getting better quality and better value.
Why do I feel that advertising on price alone is often a bad idea?
- The fight to the bottom is never-ending—Unless you have some type of groundbreaking technology or process that allows you to kill your competitors on price (like Netflix did), you’ll always be fighting with the competition to get the lowest price point. It’s like when 2 gas stations are located directly across the street from one another. They compete with each other to get their prices down to the bottom penny.
- Customers who buy on price aren’t loyal—If a customer’s only reason to buy from you is that you offer the lowest price, guess what’s going to happen when a competitor comes around offering a lower price? They’ll leave you. Customers who buy on price alone have no loyalty to your brand. The only ties they have are based on your pricing, and that’s just not enough to keep them devoted.
- Price doesn’t reflect quality or value—Leading with price in your advertising doesn’t really tell customers anything. It doesn’t show that you have a quality product, and it doesn’t show that your product is priced at the best value.
Do you really want your entire brand identity to be wrapped up in pricing? Do you want customers to think you’re a discount brand or a company just interested in getting the sale by any means necessary?
What do you think about advertising on price alone?
December 3rd, 2010 at 10:43 am
Good article. I think this is very true
December 3rd, 2010 at 11:18 am
All very good points but don't forget that the competition you speak of is the process that often drives the price-point war. For a grocery store that sells a 12-pack of Coke for $2.99 as a loss leader to get customers in the door – who may also make an impulse buy on an item with a decent profit margin – is a simple example of what drives the cycle.The grocery store must also deliver on service and quality products, in addition to price in order to keep the customers coming back. Many customers will shop at similar stores where they know they can get their preferred brands for a better price.
Customers are loyal to their favorite brands and will feel especially good about their purchase when they know they saved money. When faced with a choice between a cheaper generic brand and the real thing (Coca-Cola) many consumers will spend more on their trusted brand, however they may also not buy at all if it is deemed as a "luxury" item during tough economic times.
Another good example of marketing on price point is the QSR business. Trust me, McDonald's Owner Operators don't want to sell McDouble's with Cheese for .99. They are challenged with heavy competition so they seek volume sales and hope that customers will also trade-up to more profitable items, and of course also purchase fries and soda that have the highest profit margins. It's a cycle that affects their cash-flow, but they also can't afford to lose customers to the BK or Wendy's down the street. Back to your point though, it is true that in the case of McDonald's O/O's those that focus on delivering superior quality, service, cleanliness and value will most often succeed regardless of price wars.
December 4th, 2010 at 11:05 am
I totally agree with your note about pricing. This is very hard to understand the price organization process.
December 6th, 2010 at 9:43 pm
Point well made. It can be tempting to lower your prices when you are newer or starting out in order to get new business but I have learned a few things about that in the past.
1 customers who buy on price are almost always a constant pain in the ass as you mentioned they are also not loyal.
2 Having really low prices also gives the impression of lower value.
When someone tries to get me to cut my prices I'll politely tell them that we are not aspiring to be the Wal-Mart of the SEO world.
Also remember there is always some truth to the phrase "You get what you pay for."