Nov 25, 2010

Selling On Price Sucks

I used to think the best way to increase prices and achieve higher margins was to add more value to my services. I believed the more value I could bring to my clients the more I would be rewarded. I was wrong.

Value has nothing to do with price. Just look at the difference between the iPhone and Droid phones. The Droid phone manufacturers such as Motorola, HTC and Samsung heap on the features. Everything from bigger screens, replaceable batteries, turn-by-turn driving instructions, more powerful cameras, Flash apps and so on.

Look at the price difference between an iPhone 4 and the HTC Desire (which is the HTC Evo 4G in the U.S.). On a three year contract the iPhone is $159 whereas the HTC is $49.99 from Telus. That’s a huge price discrepancy for minimal differences in features and capabilities.

Brand drives price

It doesn’t matter how many features and benefits you load into your product or service. Brand drives price.

Apples-to-apples the iPhone and the HTC Desire basically do the same thing. Sure there are some nuanced differences, but when you read the spec sheets they aren’t all that different. You’re buying a smartphone with GPS, a camera, web browsing and the ability to load apps. But Apple has the brand.

Apple’s brand comes with a set of preconceived expectations: cool apps, great design, good battery life, and easy to use. On top of that, the iPhone is a status symbol. It’s something cool to have.

HTC offers a very good phone, and it speaks to a different group of consumers. Its user-base is attracted to the open Google platform, the ability to run Flash apps and maybe some of its specific features. I would also argue there is a different kind of cool factor with the Droid phones, because they’re not mainstream like the iPhone.

But there is a marked gap between the price of these two phones. Apple has a higher perceived value, and thus commands the premium price.

Without a brand you have to load on value

Companies that opt-out of building their brands have to load on far more features and benefits. Why else would a customer select their products? If they aren’t getting the perceived value of a brand, they look for other reasons to justify their purchase: cheaper price and more features.

If you want to escape the price trap focus on your brand. It boils down to perceived value. Your customers have choice. Lots of choice. By boosting your brand you help them cut through the clutter, and mitigate their risks by choosing a known quantity. The piece of mind a brand provides is worth something, and customers will pay the premium for it.

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