Backend Products
The “Low Price” Trap
Competition for online sales is very heavy in most consumer and information niches. For some reason, prospective buyers expect everything for sale online to be discounted or cheap – in fact, much cheaper than the same product purchased in a brick and mortar store.
Sometimes it seems that consumers (buyers) hold all the power in the sales price arena these days. They have so many choices and varying products that it’s easy to understand why a business owner feels he can only compete if he sells at the lowest price of all his competitors.
If you play the “we guarantee the lowest prices” game, you will usually regret the decision. Here’s why:
1. There is no way you as a small business owner will ever be able to compete with the Walmarts and Amazons of the world if you try to sell the same products they sell. Even in some smaller niches, the buying power of established and ongoing businesses will usually be much greater than yours. This means they will already be the preferred customer of the distributor or manufacturer and will be getting the best prices possible as they make their wholesale purchases.
2. If you choose to become known for the “lowest prices in the industry,” you will, by association, also be assumed to be impersonal, having lesser quality products and you will attract the type of customers that you may not necessarily want in the future. Many folks that shop the discount merchandise web sites expect to be able to haggle and dicker on prices.
3. Your product margins, necessarily, will become very thin if you set low, low prices. If you can move lots and lots of products, you may be able to compete, but again, you will be directly competing with others in this same industry that are already established and running at full speed. I suggest you not try to play this game of cutthroat – it is not for the novice or faint of heart.
4. By undercutting other businesses, you will be seen as the “SOB” in the industry that is making it hard on all the other businesses to turn a profit. Of course, this label may or may not fit, or stick, but who wants to be known by all the other businesses in the niche as the bad guy? They will talk negatively about your business and you as a businessman to their prospects and customers in the industry.
5. If you play the role of the cheapest in town, you will be expected to apply that label to all your products, even though you may only have one or two really inexpensive products to sell. You can’t just be the lowest price around for one item, or one part of your business and not be expected to also discount all your other products. If you try to do this, customers will say you’re just playing games in your advertising to get folks “into your store.” It’s the well-hated “bait and switch” sales tactic that most people despise.
6. There is a distinct chance that you will be cut off from your suppliers. Price fixing aside, there are many industries (and product manufacturers) that forbid or at least greatly discourage discounting. They don’t want you selling at substantially less than all their other dealers. I know many instances where companies have been cut off from their distributors because they didn’t uphold the written or unwritten sales policies but expected product “suggested retail” price to prevail.
7. I think a much better strategy than being known for the lowest prices in town is to have the highest prices around, but those prices will be seen as reasonable because you offer the highest quality products, unique products (that can’t be compared head-to-head with others freely available), fast shipping (or download), and the best customer service there is. Believe me, passionate customers will pay more, even substantially more, for top of the line one-of-a-kind products.
8. If you operate out of the U.S. or Europe, chances are pretty good that the cost of doing your business is much greater than doing business in a less well-developed part of the world. So even though the may sell the same products, the amount of profit to you after expenses is going to be less than for some of your competitors.
Please consider these reasons why you should avoid being known for the lowest prices in town the next time you set a discount pricing strategy.
To your online business success,
Steve Browne
www.SteveBrowneDirect.com