Definition The meaning of CPQ is Configure Price Quote. The acronym is used to describe a...
How diverse products can ruin your business
Yesterday I talked to a dear friend who is also a web shop owner. She sells STEM-education kits to Swedish parents and sometimes to Swedish schools. If you didn’t hear the term STEM before it stands for Science, Technology, Engineering, and Mathematics. These skills are most likely good to know in the future.
“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…
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.