6 Reasons Businesses Set Sh*tty Prices!

I’ve made over a million individual pricing decisions in my career…and I’ve seen 6 common reasons that businesses end up setting bad prices.

Here they are:

• Poor Incentives: This is usually the fault of allowing sales to drive marketing instead of the right way of marketing leading into sales. This shows up in the salesforce telling you the prospect “needs a break” or “won’t pay this price” or something else. Typically the poor incentive here is that the salesperson is paid based on the revenue not the profit.
• No Research: Setting a good price requires research. You can go fancy with conjoint studies or you can do some bare-boned Van Westendorp modeling or do anything but pull the price out of thin air. Which is where most pricing comes from.
• Intro Price Fallacy: I’ve seen this pop up in a lot of places currently. The “Intro Price Fallacy” is different than a loss leader in the way that a loss leader is recognized as something that is being sold cheap because the data points to cart size increasing due to the purchase. The “Intro Price Fallacy” is the myth that if I just charge you a cheap price to get in the door, you’ll see the value of the product and come later and pay the full price. I’ve never seen it happen, but it is a popular theory in sports business right now.
• The ROI Trap: A twin to the “Intro Price Fallacy” is “The ROI Trap”. “The ROI Trap” is this idea that the only thing that matters is the revenue you generate. That’s a big slice of baloney. It doesn’t matter how much revenue you bring in it only matters how much profit you make. I have a new iPhone 14 Max, if I offered it to you for $100 you’d buy it. I’d have a $100 in revenue and a $1400 loss. That wouldn’t make me a good marketer, it would make me a moron.
• No Confidence: This is self explanatory, but people don’t have the confidence to set the right price. I remember sharing the price tag on “The Whiteboard Workshop” that I was doing with individual businesses a few years back: $5000, BTW. And, the other consultant saying, “No way.” Yes way. And, my price and that reaction point to the challenge of having no confidence to set the right price. I had the confidence to charge $5000 for a one-day workshop and know my clients were getting way more value. The other consultant didn’t have the confidence in their value to believe that something like that was possible.
• No Value: This goes hand-in-hand with no confidence. People don’t set the right price because they don’t offer enough value. Or, they don’t see the value in what they offer. Part of it is lack of confidence. And, some of it is just being product or sales oriented where they don’t know what the customer wants. Either way…you set a bad price.
• Let me ask you…which one of these challenges do you see most often? Or, is there one you are struggling with?
• BTW, read yesterday’s piece on ways setting the right price helps you.