Pricing Too High: How Do You Get Out Of A Sticky Situation?

On June 29, 2007, Apple brought out the iPhone—and then promptly cut back the price by a third as December approached. That was a chunky $200 off.

And buyers got mad.

Especially when you consider Apple's situation where early adopters are more rabid than the usual rabid fans. These early adopters would have slept out on the sidewalk and eaten clammy sandwiches just to get their hands on the phones.

In the minds of the customers, Apple had cheated them.

And for good reason too. Not only were the phones cheaper, but instead of the 4GB phone, you were now getting an 8GB at a cheaper price. So what happened next?

As you can imagine, there's not a lot you can do unless you plan to hand out $200 bills to everyone. Apple chose to give a $100 voucher—not cash. This meant you had to buy more product from a company whose behaviour had just cost you intense frustration.

You've run into the classic ice-cream cone situation

If you give an ice-cream cone to a child and then take it away, you've got two options:

Option 1: Give the cone back.
Option 2: Let the child bawl.

In Apple's case they let the child bawl

There were hundreds, maybe thousands of angry emails. Blogs flared up with angry comments. But once the moment passed, most customers  forgot the incident just as a child forgets about the ice-cream cone.

And it wouldn't matter much if Apple had waited. As a customer you've felt the intense frustration of buying a product at one price, only to find that it's available much cheaper elsewhere. Psychologically this affects you and makes you feel like a fool—but you soon get over it.

And that's what most of your customers will do

It's almost impossible to replace cash with something else. Almost impossible, but not impossible. The way around the situation—especially for a smaller company, is to give a replacement bonus that far exceeds the original difference.

So if we were to take the Apple case-study, for instance, the grouse was that the $100 voucher was not enough to reduce the irritation factor. If on the other hand, they were given a $400 voucher, then every single future customer would fervently pray that Apple reduces their prices, just so they can get an ‘unexpected' windfall.

With Apple, such a move would set a crappy precedent

For the average small business, this is no precedent at all. You're just saying: “Hey, I made a mistake. And here's how I'm making an attempt to fix the mistake.” And you give the bonus.

The bonus would have to be at least equal to, or greater than (better to be greater than) the original difference (e.g. If your price is now reduced by $200, then the bonus should be $200 or more—preferably more!)

But how do you get these bonuses?

The obvious option is to think of dipping into your pocket and paying for the bonus yourself. This is a first option. However there are several ways in which you can ask other companies for bonuses.

Of course this depends on your number of sales, and if your sales are smaller, then you can get some pretty nice bonuses in the form of software, hardware etc (Hint: You'll need to contact the PR dept. and let them know why you're a good candidate for these freebies). However information is also highly prized. A secret entry to a website, a special report etc., will help to soothe the pain.

However you can't stop the bawling

There will be those who complain, and rightfully so. And like a parent, you may have to step aside. No one likes price changes—whether the prices are going up or down. And while it may seem that the customer is always right, the fact is that things change. The computer I run today would have probably cost $20,000 about 15 years ago.

Things have changed, and hence prices change. It's something that the customer has come to accept. And if your business ended up pricing something too high and now wants to reduce the price, that's just how things are. It sounds rude. It sounds anti-customer, but a deal is a deal at the point of the deal. If things change, the deal changes. We may not like it, but we all know that to be true.

Ideally, however, your pricing should move up, not down

You already know that, and it's probably too late, but moving up is better both for you and the customer. Moving up gives you the feel of the market and as you raise your prices, you can see the direct impact on sales. If you use a systematic procedure like the Yes-Yes Factor, you're almost guaranteed to get consistently higher prices without ticking anyone off.

If you reduce prices you're going to tick off someone. But it also depends on the loyalty of that customer. In Apple's case, the brand loyalty was enough to quell the angry temper. Over time, your best weapon is to have such an amazing product or service, that customers will forgive you for it and keep coming back.

So do a great job—and next time around start at the bottom and work your way up!