“In kids-electornics we have two
big-sellers” she told me. “One small kit retailing around $60 and a bigger kit
retailing at around $130.”
“Then we
have some other similar kits in the range from $80-$100. You basically get what
you pay for, the more expensive the more STEM-experiments you can do.”
There’s
basically only market demand for the big-sellers and therefore she decided to lower the price on the mid-range products to reduce stock. This is
when something strange happened…
The surprise
Instead of an
increase in sales (when prices were cut) there was an overall reduction in sales.
After some
analysis there was one obvious but maybe not intuitive conclusion.
When prices
of the mid-range kits came to close to the small kit (with the discount there was
only a 10 % difference) it became more difficult to decide what to buy. And when
it becomes difficult to decide there will be no sales.
What can we learn?
When
deciding how to price make sure that it’s easy to differentiate products. Remember
that price is a very important factor in making this decision. By keeping a clear
separation of prices you help your customer to decide what to buy, and thereby
speed up the purchase processes significantly.
Prices don’t
need to be logical, just make sure they help the customer decide how to pick
and choose your various options. It's equally important, no matter if you run a web shop or if you're responsible for a CPQ-system.
As a "pricing officer" you need to do quick changes and sometimes quick adjustments. Don't forget that the correct prices will help you both to sell and earn some money while doing so.