The other day I walked through town to buy lunch and also bought a pair of chinos. That evening I told my wife that I had spent more on lunch than on my new chinos; I had to calm her down by explaining that my lunch was a takeaway from Marks & Spencer, and a meal deal at that! Lunch cost £4 but the trousers, also from M&S, cost £3.99.
My wife’s reaction was interesting. She assumed the trousers would be sub-standard in some way. Indeed the salesperson at M&S issued a dire warning that these trousers could not be returned as they were a sale item (I said I’d use them to polish my car if they didn’t fit). In fact I began to doubt my decision until I wore them to go out to dinner with friends the following evening. The chinos felt fine and looked perfectly normal after I removed the offending £3.99 price ticket. They have already long outlasted the meal deal in utility value.
It made me think about that £3.99 price ticket. Originally the chinos had been £39.99 and probably hadn’t sold because they are an odd size ie my size. If they had been reduced to £19.99 or £10.99 I probably would have bought them without a second thought and believed I had bagged a bargain. But, £3.99 isn’t cheap as chips it is cheaper than chips by which I mean too cheap.
This trouser experience was a great reminder that all too often we lose business by being too cheap to be credible. It is worth remembering Gerald Ratner at an IoD Convention over twenty years ago when he explained that he could sell a silver tray with cut glass decanter more cheaply than a prawn sandwich because it was c**p. That is the assumption if you set your price too low.
If you are selling a quality product or service and want to have a sustainable business you need to set your prices at an appropriate level. For most of us the range of possible prices is set by the market in which we operate. You need to understand that range to optimise your prices and your resultant profits.
My chinos have created an immunity to the daily e-mails imploring me to buy five shirts for £100; in my new world that sounds blindingly expensive.