By Mark Schaefer
I have a wide range of interesting business clients and I had a conversation the other day that I thought could benefit all of you.
This particular entrepreneur had created an extraordinary, premium niche with a home electronics product. His company has a unique capability and is able to charge nearly 400 percent more than competitors. His profit margin is a thing of beauty.
He wanted to discuss a new strategy with me. He was planning a line of lower-functional units that would be less than half the price of his premium line. “This seems like a great opportunity to reach a bigger chunk of the market that can’t normally afford our product,” he said.
A chill went down my spine.
He was about to screw up his whole company.
The price determines the brand
“Look at it this way,” I said. “Your competitors can only dream of having the price and profitability that you do. You’re going down to their level. Why would you lower the value of the brand? You’re going the wrong direction!”
Your price is your brand. Think of Nike as an example. What would you think if you walked into a store and saw a new pair of Nike sneakers at a retail price of $19. Something is wrong!
$200 is the brand. Not $19.
In the case of my entrepreneur friend, there is meaning attached to paying a high price for his premium product. His gear is something that people aspire to. They save their money for it. Buying his product is an achievement.
What would those fans think if suddenly everybody could afford to buy that line of products? His brand would be ruined.
When everybody buys Gucci, then Gucci is no longer Gucci.
Price determines the brand.
Fight for your lane
My friend has a perfect product. He has a unique, useful product that has a technological advantage that is hard to beat. He continues to innovate and create new product variations. He has spent almost no money on traditional advertising or promotions and became a hit by focusing on word of mouth marketing. His product has become the toast of Reddit forums and YouTube channels where thought leaders praise his wonderful technology.
If he continues to innovate in a relevant way, my friend will never have to have a sale. He will never have to lower his price to move inventory. In fact, creating a bit of scarcity helps.
In this scenario, lowering your price for any reason is a failure. My advice is to go the other way — create something that is so fantastic that it is even more premium than premium. Charge even more!
Price is truth
I used a premium example here, but there are plenty of businesses who make a ton of money on commodities and low-priced goods.
If WalMart started carrying a Hermes scarf collection or Rolex watches you would be shocked. It would be incongruent for both WalMart and the brands. They need to stay in their lanes.
In our space there is naturally a lot of attention paid to the sexy stuff like social media and content but don’t overlook the fundamental four Ps of marketing — price, product, placement, and promotion. All present legitimate opportunities to define and support the brand.
Note: This post generated a lively discussion online about the connection between price and quality. Some emphasized that you must maintain quality to achieve a high price and I wrote a post to show why quality is not necessarily a predictor of price.
Mark Schaefer is the chief blogger for this site, executive director of Schaefer Marketing Solutions, and the author of several best-selling digital marketing books. He is an acclaimed keynote speaker, college educator, and business consultant. The Marketing Companion podcast is among the top business podcasts in the world. Contact Mark to have him speak to your company event or conference soon.
Illustration courtesy Unsplash.com
