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Surprise! Cutting prices won’t guarantee more customers

If you're thinking that cheapness is a virtue in your business, it's time to unlearn that misconception.
By Perry Marshall |

 

If you were to raise your prices 20% tomorrow and not lose any customers, what would happen to your profit margins?

 

If you make a 10% profit margin now, you would be making 25% tomorrow morning. On the other hand, if you cut your prices 20%, you would be sending out peso bills with every order.

 

Related: Financial Adviser: To cut or not to cut my price?

 

 

Charge more and make more

Which is a very simple way of saying that cutting your prices to win more customers is a very, very bad way to make more money. It is the fastest route to more hassles and less profit. There is always a way to charge more. And there are always people who are willing to pay more.

 

Related: How to Formulate A Premium Pricing Strategy

 

My dad was a minister. Which means that when I grew up there was not a lot of extra money laying around. If you ask my mom, she will tell you that when I was seven or eight years old and forming my perceptions about money, our resources were pretty darn thin. Consequently I am a pretty thrifty guy.

 

For me, there is a natural thrill to taking a hundred peso bill and stretching seemingly impossible value from it. It is one of the things that makes me a good marketer. When the president of a company tells me that it costs him $50,000 or almost a million pesos to acquire a new customer (happened a year ago), I get a buzz. Because I know I can probably slash that cost dramatically and bring him a whole bunch more customers at the same time.

 

Related: How Much Did That New Customer Cost You?

 


Is 'cheapness' always a virtue?

But there is a downside to that thrift, too. I grew up thinking that there was great virtue in having low prices. And that is a very bad way to think when you are a marketer, because if you are not the 900 pound gorilla in a commodity market, you will get smashed by him.

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One of the things that I had to learn was that being the premium priced guy in town is a good thing. Not only does it mean your profit margins are a whole lot fatter, but you also get more respect.

 

If you are thinking that cheapness is a virtue in your business, it is time to unlearn that misconception.


Here is the real deal: Most companies ask themselves: “How low do we have to go to get customers to buy?”

 

But here is the real question you should ask yourself: “How do I add enough value to what I already sell so that people will pay twice as much for it?”

 

Related: Adding Value: The Future of Marketing

 

That is exactly what many companies including Whole Foods and California Pizza Kitchen have done. And when you are a marketing maniac like I am, your eyes and ears are open for examples everywhere you go.

 

Answer that question in your business and you will be surprised at how fast your company can grow.

 

 

***** 

Copyright © 2016 Entrepreneur Media, Inc. All rights reserved.

This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.

 

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