Underpricing Can Hurt Your Product’s Brand Image
Underpricing a product starts out with good intentions, but quickly turns into a tricky ordeal. For most companies, underpricing is a tactic used to either undercut the competition or to increase sales volume, in the hopes that customers will be sucked into thinking they’re getting a great deal. We touched on this a bit in a previous post about J.C. Penney's no frills pricing strategy. However, in the consumer’s point-of-view, this often creates distrust for the quality of your product. After all, if I offered you a brand new $1200 Apple MacBook Air for $50, you would probably wonder, what’s the catch?
The grocery store is another place rampant with price experimentation and price optimization. I can’t tell you how much unnecessary time I’ve spent choosing between the hundreds of different brands of the same product, because of the differing prices and features. In fact, there are eighteen different brands of peanut butter at my neighborhood Shaw’s (18!). As I sift through the Skippy, Reese’s, and Jif, there’s always the generic store brand (in this case “Shaw’s Peanut Butter”) that is priced remarkably lower than the rest. Even though I know the peanut butter can’t be that different, Shaw’s low relative price point encourages skepticism on my part, and I end up throwing the Skippy into my basket. Albeit, the price difference isn’t as drastic as the MacBook Air example above, but Skippy’s optimal price point (comfortably between the generic brand and the super expensive, fully organic peanut butter) catapulted the brand into the number one most purchased peanut butter in the world.
Of course, marketing, distribution, and the like all contributed to Skippy’s empire, but even in our "Wal-Mart discount" and "blue light special" world most people still believe in the concept of, “you get what you pay for.” As such, when you’re working on your pricing, you need to work to push your pricing to the equilibrium where customers truly value your offering.