There’s no denying that in a cut-throat economy, people instinctively look for the lowest price first. Online, even high-end retailers are slashing their prices to attract e-foot traffic with last minute deals and bonuses.
But cutting back prices may not give you the results you expect. Let’s take a closer look at what can happen over the long term when your online price goes down.
Let’s say you sell a digital product, which means there’s no shipping, no inventory and none of the overhead like typical products endure. Your digital product sells for $29.95 and you have an up-sell for a more expensive version at $49.95. To hopefully increase front-end sales, you chop the price down to $19.95 – watch and wait.
At $29.95, let’s estimate you typically sold 1,000 units of your product a month. 20% of those people who wanted to buy the front-end version ultimately go for the more expensive up-sell, so you end up with:
200 units selling @ $49.95 = $9,990
800 units selling @ $29.95 = $23,960 = a grand total of $33,950 for the month.
Not bad, right?
However – watch what happens when you lower the price. Obviously you’ll want to test this for yourself as it’s no indication of how your particular market/industry/niche will perform.
At the end of the month you do a bit “better” and sell 1,200 units total. However, fewer people wanted the up-sell since they were already going for the “cheaper price” of the front-end product alone and only 100 people bought the higher-priced version.
Let’s look at the numbers:
100 units selling @ $49.95 = $4,995
1,100 units selling @ $19.95 = $21,945 = a grand total of $26,940
That’s a difference of over $7,000 in one month! Multiply that same performance month after month and you’ll see where I’m heading with this.
The point is, competing on price alone can actually cost you more in terms of lost back-end sales. Not to mention the new pool of competition you’ll be swimming with that are trying to sell based on price alone! That isn’t even figuring in the cost of an actual, tangible product where shipping, marketing, stocking and overhead figure in.
Before jumping on the price bandwagon, run the potential numbers and see what a lower price (and higher competition) might actually mean for your sales.
Consider the life-time value of every customer and how the quality of your product factors into the price you sell it at. While there’s no doubt that price cutting alone can help in some instances, it pays to test it for yourself and see what happens.
Do you have similar results to share? Or has a lower price resulted in significantly better business for your website? Let me know in the comments below!
Tags: cheap, cheap marketing, low price, low prices