10 Reasons It’s Good To Race To The Bottom With Pricing

November 22, 2017By
Arrows

Focus on taking things down.

Often what you’ll see and hear in business media is that you should increase your prices.

Some say raise your prices to improve the perception of what you’re selling.

Others say that you’re underselling yourself.

Or it’s about adding features so that you can justify a higher price. That one I can get on board with a little bit. It’s good to find new ways to add value to your customer. And it’s fine to expect something in return for that value.

But let’s flip this on its head…

What if the best approach was to focus everything on lowering your prices?

Let’s look at some reasons why it’s a good idea to do that.

1. If You Don’t, Someone Else Will

This was a lesson I learned by reading about James J. Hill. He was a railroad tycoon on the late 1800s. He, unlike many other railroad tycoons, was focused on the long-term. He was obsessed with lowering the price of riding on a train.

He focused on freight. Big cars carrying as much weight as possible. He saw that as the most efficient. And he was always working on straightening his roads and evening out the grade.

It all contributed to lowering the price.

He would spend money so that the price could be lowered.

That’s backwards thinking for most of us today.

But his thinking was that if he wasn’t taking those actions that he was vulnerable.

We saw this happen in the 1980s and 1990s.

Small towns everywhere saw Walmart come in. Low prices. Customers loved it. Small businesses? Not so much.

But those businesses weren’t focused on lower the prices of everyday items. They were vulnerable and eventually Walmart came in an exposed that vulnerability for the benefit of consumers.

2. Your Customers Want Lower Prices

I accidentally mentioned this one in the last point.

If you’re paying for something you likely want the lowest price possible.

But yet as a businessperson you likely want other people to pay the highest price possible.

Why are you different than everyone else?

We often give lip service to the idea that we need to give our customers what they want. Well, they want the lowest price possible. If we aren’t working to give them that then we’re not really working to fulfill their needs.

3. Natural Economics Lowers Prices

What is luxury today will be common tomorrow.

Cars, boats, watches, technology, etc.

Luxury is a good thing. The upper class in the world want the best things. They want new things. They push entrepreneurs to come up with the best the world has ever seen. And for awhile the wealthy are the only ones that can afford luxury, but eventually the natural economies of the world lower prices and more people can afford things.

The reason?

There is money in luxury. People see it. They move in. And soon there is competition that is working against each other to lower the price.

When cars first came into existence only the upper class could afford them. Then there was a flood of new competition and within a few decades most people had cars.

Computers and cellphones are recent examples.

You can’t fight nature. Well, you can try, but you’ll lose.

Nature pushes prices down. You might as well get on board with that reality and win the race to the bottom.

4. You Force Yourself To Get More Efficient

Efficiencies are good for you and for your business.

If you could trim 10% off your costs would you do it?

Absolutely.

But are you working at doing that right now?

Probably not.

At least probably not as much as you could be.

When you take on the mindset that you need to lower your prices you’re forcing yourself to look at efficiency. You’re forcing yourself to examine every cost and looking for ways to do it cheaper while perhaps even creating a better product.

5. It Forces You To Get Better At Sales

If you’re lowering your price it forces you to improve at sales. And sales is perhaps the most important element of a business. Heck, you aren’t in business unless you’re selling something.

If your margins are getting tighter and tighter (because you’re lowering your prices) it’ll force you to sell more so that you’re still making the total dollars you need.

Sales is a good skill to force.

6. You Create More Demand

And one thing that will help with sales is lowering your price. Remember, that’s what customers want. They want the lowest price they can get.

Lower your price before they even ask.

If someone came out with a $5,000 brand new car tomorrow that had 80% of the features of a $50,000 car you can bet that people would be interested and you can bet that they probably wouldn’t be asking the seller to lower the price even more.

Some might, but not many. They would be too worried about getting the car before the seller ran out of inventory.

7. You’ll Automate Things

Automation is a good thing. When you’re focused on lowering your price, at least these days, you’re focused on automating things and really getting your business to run without you and really without many people (if any) doing any work.

Henry Ford understood this really well. He had a low price mindset. He had to automate things in order to lower his prices.

That allowed him to completely automate the business and the business didn’t need him anymore. That’s a good thing.

Too often we like to think of ourselves as important. But that leads to us wedging ourselves into the business and that holds it back.

Take yourself out of the business.

8. You’ll Focus On New Businesses

What will you do when you’re out of the business?

You’ll have time to work on new things. And this time around you’ll have a source of income from your automated business to help you along the way.

And if you’re pretty much at the bottom price with the other business it’s a good sign anyway that it’s time to move on. That business will hum along for awhile, but the world is probably looking for the next thing.

That’s where you can start to focus on innovation. Finding something that will have a high price now, but that you can work the same process with to lower it in the future.

9. People Will Want To Partner With You

When you have the lowest prices it attracts people. That includes partners. And partnerships can lead to more revenue.

If you’re selling the lowest social media services, for example, that will make others with complementary services want to work with you because they can afford what you sell and it’s appealing to their customers. And together you can create a package that is lower in price than anyone else in the market.

10. People Will Want To Work With You

And speaking of attracting people the lowest prices often attract the best workers. Maybe they won’t want to work with you on your current business. They can see that you have that figured out. But they’ll want to work with you at your next business where they can get rich and do meaningful work.

Amazon seems to be attracting people for this very reason.

Conclusion

Get over the mindset of increasing you prices. That’s a losing strategy. You’re fighting nature. You’re making things more complicated. You’re making your customers work harder and suffer.

Make things better by taking on the mindset that you need to always be lowering your price.

It’s worked for the best businesses in history and it can work for you too.