Looking for Brown Street Realty?

When Pricing Too Low Hurts

No matter who you talk to in Perth, Melbourne or Sydney it is becoming increasingly obvious that folk with a job are stashing their cash. Consumer confidence is all over the place and in most people are using low interest rates to maintain their payments and pay off debt.

The consequence of this is Sellers are resorting more and more to dropping price to get people to act. Is this strategy going to be successful? Probably not, especially when it comes to high end or luxury commodities.

I take you to case study that a professor of mine presented to us in business school. It has always stuck in my mind.

This professor was from the US and did a lot of consulting. He was known as a highly analytic marketing expert. One of his clients a french producer of champagne was trying to enter the US market but with limited success.

After analysing the 5 P’s:

  • Product
  • Price
  • People
  • Promotion and,
  • Place

He determined that the champagne was of a very high quality, it was being distributed in the right places, and that the marketing investment behind it was substantial. And yet it wasn’t selling very well. Pricing was at the very low end of the range of the comparable product.

So the professor’s advice was to increase the wholesale price such that the retail price would double. Surprise, surprise the product went onto being a success. Obviously this was going to be the case or my professor would never have told us the story.

But the morale of the story is that price is often used as a proxy for quality by customers, particularly when the product is a luxury item.

So when selling something, be it advertising, software, high end fashion, think carefully how you are signalling the market with pricing. Having the lowest price among your competition might be the right strategy but it might also be the wrong one.


Recent posts