Pricing

When the economy is down, there is a tendency to want to drastically lower prices in order to maintain market share (or various other reasons). The problem is, sometimes they lower their prices to the point where they aren’t increasing their numbers of clients but are reducing their revenues.

I ran across an example recently when I was looking on the Greyhound web site (for those of you who don’t know, I choose not to fly so I take buses when I travel). I was looking to travel round trip between Charleston WV and St Louis MO. The regular fare was $205. The 7 day advance ticket was $148. I felt this was a reasonable discount as the 7 day advance ticket is non refundable. However, they also offered a 10 day advanced ticket (also non refundable) for $46. Did they really need to discount this ticket so that it’s less than 25% of regular fare? Considering there is no way to fly or drive for anything close to this amount, couldn’t they have charged $89 or $99 for the same ticket?

Another example of discounting hurting the bottom line would be two free lancers I hired recently for some work. One quoted a very low rate and the other quoted a price that was almost three times as high. I gave each small projects to work on (the actual projects aren’t important for this example) and the lower priced one kept talking about wanting more projects in the future because she needed the money and how important this was to her. The more expensive worker just did her job (exceptionally) and didn’t “beg” for more business. While the less expensive worker had a lot of short term work, she never finished the project for me and wont ever get any more work from me (and probably wont get more from others either). The more expensive worker has already received two bigger projects from me to work on and most likely will get much more. She didn’t offer great discounts but rather, was able to concentrate on the particular project because she wasn’t having to do so many things for so many people.

Charge a fair amount, offer great products or service and the rest will take care of itself!

Have a great day

Lawrence

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