Pricing isn't just about matching or beating your competition. It's also about how customers perceive your brand.
If your prices are much lower than everyone else's, customers might question the quality of your product. But if they're too high, customers might go to more established brands at a similar price point. Why would anyone buy a $2,000 phone from you when they can buy an iPhone?
So, how do you set your prices to reflect both the value of your products and your place in the market? In this article, we'll explore how competitor pricing affects how customers see your brand and how you can use it to your advantage.
Price isn't just a number; it's a signal. Customers often associate price with quality, affecting how they view your brand. If you're selling something at a much lower price than your competitors, it might lead people to think it's inferior. On the other hand, a high price can suggest exclusivity and high quality, but only if your product delivers on that promise.
For example, imagine a small boutique selling handcrafted leather wallets for $25 while similar stores in the area sell them for $60. Even if your wallets are made with care and attention, customers might wonder why they're priced so much lower; they might think you use lower-quality materials.
What if you now price your wallets at $100 but offer no additional value compared to competitors who are selling them for $60. Customers might feel they're being overcharged and go elsewhere.
But if we flip this hypothetical situation on its head and make you into an established and trusted luxury brand, you would probably get away with selling your wallets for $200. Crazy right?
For many people, product prices are more than just a financial decision; they also have emotional components attached to it as well, like status or perceived quality. This emotional component influences many people's buying decisions in conjunction with price.
We all love a good deal. However, consistently being the cheapest option on the market can backfire. When your prices are significantly lower than competitors, customers might assume there's a catch. Lower quality, poor service, or hidden flaws. While it's tempting to lower prices to undercut the competition, this "race to the bottom" can hurt your brand over time.
Let's say a local bakery decides to price its cakes lower than others in the area, believing this will attract more customers. However, customers begin to associate the low price with lesser quality ingredients, even though the bakery uses top-notch products. Over time, this pricing strategy backfires as customers flock to competitors who are charging more but who are seen as offering better value.
Customers who care about value are looking for more than just the cheapest price. They want quality and reliability. If your price signals that your product is "cheap" rather than "affordable," it can damage your brand's image.
On the other end of the spectrum, pricing your products too high can create the perception that you're out of touch with what your customers want. Premium pricing only works when customers believe they're getting something extra for that higher price, whether it's better quality, exclusivity, or added features.
In fashion, brands like Gucci and Louis Vuitton can charge premium prices because their products have perceived value, luxury, status, and exclusivity. People want to be seen wearing products from these brands, and they're willing to pay for it.
But for smaller or unknown brands, charging similar prices without establishing that level of perceived value can drive customers away. If a new, lesser-known handbag brand were to price its items at the same level as Louis Vuitton, customers would likely expect the same level of craftsmanship and status or, more than likely, expect even more. Without it, they'd quickly move on to other, more reasonably priced options.
If your prices don't match the perceived value, customers may see it as overpricing, leading them to choose more reasonably priced alternatives.
Your pricing strategy does more than affect your bottom line. It shapes how customers perceive your brand. Setting prices that reflect your product's value, but you also need to make sure you communicate these values to your customers. Do you use sustainable materials? Let them know about it. Are your products being used by celebrities? Let them know about it!
There are plenty of ways to communicate your values. Put them on your website, post product pictures with captions detailing your values on Instagram or even do review videos on YouTube. The more information your customers have on your brand, the better purchasing decisions they can make, and it all starts with your price.