Talking previously about some lessons that we learned from the super bowl in an article by John it was obvious that we can use anything in life for a lesson in successful business. I had the opportunity in my younger years to work for a company in the data center and hosting business that had been bootstrapped way back in 1994 and had grown into a respectable middle-sized company by the time I worked there. If there was one thing that this company taught me, it was the value of being a top notch service provider first, and being competitive on price second, not the other way around. There were so many other things this company was good at, like motivating salespeople and providing great incentives, but there was is still the one single value proposition that sticks in my mind even today.
Typically, when starting a business, founders are worried about what their price point is going to look like, compared to their competition. Almost always, people will price their product as low as they possibly can in this competitive ballpark, and then try and make the volume as high as they can to make up for this. Don't worry, I'll bring Apple and Sony as examples later.
First, here's bad news, if this is your strategy: someone will always beat your price. Have you ever seen a Walmart? This is the idea. By sheer volume, some of these competitors can simply mark their items at or below cost, until your business gets out of the way (ie: fails) and then they will raise their prices back up again.
Secondly, people will pay much more for quality. The crazy thing about this, is that they will pay even MORE money for a trend or a name. Think about when you bought your pair of Sony Beats. Are there better options for a pair of headphones that cost lest money? Of course. You could get a pair of Bose headphones that have an even bigger driver in the speaker and much higher quality sound for much less. But why has Sony cornered the market on this? Because Kevin Garnett, Dr. Dre, and a dozen other sports stars have their name on it. In simple terms, because of branding. Price doesn't really matter. Even in a rough economy, there are people that will ALWAYS pay for one thing: exclusivity.
The last thing that I would assert is that it is much easier as far as overhead and operating costs, if you have a physical product, to have a big markup on a few items rather than make pennies on a high volume product. If the high volume product is easy to get distributed, then go for the high volume. But more often than not, you are competing in an area that you could be charging more for, and make a higher profit margin on a smaller amount of items than if you were dropping your prices to compete with everyone and everything in your market corner.
Next time you are considering your pricing options, consider that when your potential customers see that your product is priced a little higher, it is likely because it is a higher quality than your competition. This is the premise behind the value sale.