Why reducing prices may not be the best idea

I met an artist at a design fair this summer who made beautiful miniature figurines encased in glass boxes. Each piece was a scene in a play and staged with obsessive detail. Well worth the $500 price. Maybe not a price that appeals to everyone which is probably why a customer who was browsing her art started backing away slowly after seeing the price tag. The artist stopped her and asked how much she would pay and even suggested a few prices…

"$100, $50…$25??"

$25?!? I thought she was kidding (and so did the customer). But no. She was serious.

As a pricing geek, I asked why she was offering such ridiculous discounts. Her answer was: "I'm just starting out and I just want to put as much of my art in people's homes."

That's a reasonable explanation. I make art and sometimes I've talked to the artist I partner with about ways to get our art into people's homes. We've toyed with the idea of reducing all our prices. The more we've talked the more it's sounded like desperation and insecurity. We stopped and asked ourselves, is price really the problem? What if it's something else?

Are we selling at the right venue?

Are we selling to the right audience?

And most importantly, if some pieces aren't getting any interest, is it because they're duds? (Oh yeah, we make a lot of duds.)

It's important to analyze that kind of stuff before reducing prices because once you do roll back, you send a few signals to your audience:

The most glaring of all is, previous customers who paid full price will feel cheated. Not even Apple fanboys can get over that hurt. Apple initially introduced the first iphone at $500 dollars, then dropped the price by $100 after a few weeks. For the first time, the fanboys blogged in anger. Apple hardly ever apologizes but in this instance, they did. They also returned $100 to everyone who bought at full price.

Another problem is, you're telling customers that they might be bringing a cheap product into their homes. This is a real turn off. To a customer dropping the price may not translate to "We're doing this because we want to get our art into your home." Rather "This isn't as valuable as we imagined."

Another side effect is, customers may start waiting for the price to drop even more. The car companies must have trunk loads of case studies to back this bit. Even video game enthusiasts waited for the Playstation3 price to drop (as always) and it never did, hurting sales.

If price is the problem—and in this tough economy sometimes it is—it may help to TEMPORARILY reduce prices to get stuff into people's homes. But how do you do that without hurting your brand?

All the best marketers I know use one tactic: Give people a GREAT REASON for lowering the price. The best reason is, you are doing for fun versus just to get them buy stuff. And by fun I mean customers have to feel like they've earned the discount.

A manager at new Ikea store in Sweden uploaded pictures of his store and asked his customers to tag their favorite pieces of furniture. The first person to tag an object got to take it home. Customers had fun and the promotion cost him nothing. Except the price of the furniture which he wanted to give away anyway.

Zappos keeps prices high but offers free shipping on sales and returns. We took a page out of the Zappos playbook. We just gave free shipping to a customer in Brazil. It cost us $40 to ship. But we got it into his home. We also said we'll give him another 50% off on his next purchase if he sent us a picture of the objects at his house with 5 friends. He wrote back saying he's throwing a party to gather some friends.

An artist we know offered a customer 50% off a San Francisco themed print if he could answer three questions about the city. The customer got all the answers right. He earned the reduced price only because he aced the quiz. Fun!

Sometimes lowering prices is a good idea but do it in a way that protects your brand. If you're a new artist, that may be a way to get your stuff into people's homes. I'd love to hear what you've tried. Go ahead and share it in the comments.

This is a monthly post of the touchiest of all subjects, pricing! See you again in November. For the October feature, "What's the price of garbage?", I've updated the post with the answer here. Thanks for all your comments!

Posted by Vinit (TheWhiteout)