Price Addiction

It never ceases to amaze me how addicted people get to low prices.  You probably think I’m talking about buyers, don’t you?  Well I’m not.

As I’ve stated in many of my earlier blogs we, as sellers, have trained buyers to be price conscious because we place price at the heart of every marketing piece we create.  What I hadn’t, until recently, realized is that we’ve been drinking that Kool-Aid so long that we’ve become addicted to low price strategies.

This realization came as I watched yet another JCPenney’s square deal adds that highlighted the days when their customers could get the ‘best’ prices.  These ‘deals’ come from a company that recently declared itself different than other retailers by ‘eliminating’ discounting.

Why is it that we, as sellers, have become so addicted to low prices?  There are several reasons that come to mind:

  • Walmart’s success
  • Poor customer profiles
  • Internalizing our beliefs

Walmart’s Success

Certainly Walmart’s success with a low-price strategy has been greater than any company in the history of commerce.  Companies trying to emulate Walmart’s success overlook several realities.

First, there is only one low-price leader in any industry.  Unless you have a plan for leapfrogging your industry’s low-price leader, you’re setting yourself up for failure.

Second, low-price strategies eventually fail.  Yes Walmart is still enjoying revenue and profit growth, but it’s in countries in which they are still adding new stores.  For those countries in which they’ve saturated the market Walmart is struggling to maintain revenues and, here in the U.S., could only do so by giving up over 2% of their profit margin.  That’s roughly 10% of their original margin.

Third, their customers don’t value the same things that Walmart customers do.  Which brings us to the second reality, most companies do a very poor job of profiling their ideal customers.

Poor Customer Profiles

I’ve spoken to JCPenney customers who say they wouldn’t be caught dead in Walmart.  Others tell me that they go to Walmart for cleaning supplies, but not for their clothing.  What do these comments tell us?

That these consumers have an image of themselves that’s quite different than what they perceive to be Walmart’s ideal customer.  The questions that JCPenney should be asking their customers are:

  • What items do you go to Walmart to get?
  • Why do you pay more for items than the low price you get at Walmart?
  • What items are those?
  • Why don’t you purchase those items at Target?  Macy’s?  Nordstrom?

These are the kinds of questions that help a company create a clear, concise profile of their ideal customers.  With this profile it’s much easier to craft marketing messages to attract customers who like what you have to offer and sales scripts to close the sale.

This brings us to the third reality of our price addiction – internalizing our own beliefs.

Internalizing Our Beliefs

Years ago I had a client comprised of seven entrepreneurs who had pooled some of their resources and invested in businesses around the country.  Each of the seven was responsible for running a different business.

One of the seven would craft stories to explain his company’s performance (or lack thereof) to the other members of the group.  These stories always had some element of truth, but were designed to hide some critical facts.

I watched this man relate the story so convincingly that even I, who knew better, felt myself being drawn into believing what he was saying.  How was he able to accomplish this?  He rehearsed the story so frequently that he actually came to believe it himself.  That’s what’s happening to retailers suffering price addiction.

These retailers have trained their customers to be price conscious and, in the process, come to believe that customers are price conscious – of their own volition.  Consequently they’ve stopped trying to differentiate themselves on anything other than price.  In the process they’re ignoring the things that are truly important to their customers’ self-image.

By the way, the situation I outlined above afforded me one of the greatest learning experiences I’ve ever had.  I had to learn how to introduce facts that contradicted some of the story being told without making that partner appear to be misleading his fellow partners.

Lesson Learned

Don’t become addicted to low prices!  If you are, use the questions in ‘Poor Customer Profile’ section to overcome your addiction.  You’ll quickly get back on track to serving your customers in the way they’d like to be served.

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