Forget your economics 101 where they say low price means high volume. That’s for coal in the 1900s. In today’s world, low price means high volume only if you’re a capital-intensive location-intensive big business like McDonald’s, Costco, or Walmart.
For the rest of us, especially the startups and the real-world small business, the high-value high-price strategy is far more likely to work.
Good restaurants, expensive design, professional services, hotels . Do you always buy by price? Or rarely? When was the last time you stayed at Motel 6? How about a better three- or four-star brand-name hotel? When was the last time you ate at the cheapest restaurant in your town?
Sadly, too many business plans focus on generating new products or services at lower prices than the existing ones they’ll theoretically replace. That’s really tough. Very rarely works as well as the small, focused, higher-priced value offering.
By the way, thanks to Bill Brelsford for posting On Raising Prices, a good reminder, which links to To Raise Prices: Performance Pricing Strategy on WSJ.com
(Image: istockphoto.com)
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
