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Many companies are reluctant to play the price game, but they do so because they know it is effective. So effective, in fact, that the temptation can sometimes be overwhelming. There are few professional services firms that, when faced with an opportunity to land a big piece of business, haven’t just dropped their price to make the deal happen. No matter how they rationalized it to themselves or their clients, price is a highly effective manipulation. Drop your prices low enough and people will buy from you. We see it at the end of a retail season when products are “priced to move.” Drop the price low enough and the shelves will very quickly clear to make room for the next season’s products.<\/p>\n\n\n\n
Playing the price game, however, can come at tremendous cost and can create a significant dilemma for the company. For the seller, selling based on price is like heroin. The short-term gain is fantastic, but the more you do it, the harder it becomes to kick the habit. Once buyers get used to paying a lower-than-average price for a product or service, it is very hard to get them to pay more. And the sellers, facing overwhelming pressure to push prices lower and lower in order to compete, find their margins cut slimmer and slimmer. This only drives a need to sell more to compensate. And the quickest way to do that is price again. And so the downward spiral of price addiction sets in. In the drug world, these addicts are called junkies. In the business world, we call them commodities. Insurance. Home computers. Mobile phone service. Any number of packaged goods. The list of commodities created by the price game goes on and on. In nearly every circumstance, the companies that are forced to treat their products as commodities brought it upon themselves. I cannot debate that dropping the price is not a perfectly legitimate way of driving business; the challenge is staying profitable.<\/p>\n\n\n\n