Low Prices Are Not Always Your Friend

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asp?symbol=BBY'>BBY) lowers the price on something, Ultimate Electronics lowers it even further.

Whether or not most consumers believe this is beside the point (I suspect they don't believe it—we've all learned that lowest-price promises are often empty). What I can't figure out is how Ultimate Electronics expects to build long-term success with this strategy. The chain will tend to attract price-driven shoppers who are likely to have zero brand loyalty. That might sell a razor-thin-margin TV today, but won't build equity for tomorrow. Even in the cutthroat world of consumer electronics, low prices are not always your friend.

Nor are low prices a winning strategy in the ultimate not-for-profit organization—where you wouldn't think pricing strategy is even a consideration—a church. One of the churches in my community was advertising a stage performance of The Messiah in the weeks leading up to Easter. In the spirit of its mission, it offered tickets to the event for free, which is what you might expect from a ministry. But we all know the truism that you get what you pay for. I think the church's outreach might have been more effective if it charged at least a minimal fee for the tickets—not to make money, but to communicate that the performance is of high quality and worth attending.

Face It, You're Not Wal-Mart

Sending a quality signal via higher pricing is an undervalued, and often overlooked, tactic. An architect friend of mine is incredibly talented, and as a result is very busy. He's under stress from managing all of his commitments and worries about the effect it is having on the quality of his work and his reputation (not to mention his family). My counsel to him? Raise his fees. Doing so will enable him to bring on more staff to relieve some of his load, ensuring he can maintain his high standards in all that he does. It will also chase away his more price-sensitive customers, allowing him to devote the time necessary to do better work for the clients that remain. He's coming to the understanding that until he loses a fair number of clients due to price objections, his fees are too low.

The same goes for any product or service. It can be odd to feel good about losing customers because of price, but if you're not, you may be backing yourself into a low-margin corner. And don't kid yourself—other than Wal-Mart (WMT), very few companies can truly sustain a low-price positioning.

Experiment with your prices. Find a way to test a higher price point (BusinessWeek.com, 12/17/07) in a select market or with a certain group of customers. You may find the margin improvement offsets any revenue losses you experience. And you may even find your overall volume increases due to the halo effect of a higher price.

Remember, consumers will always ask for lower prices, but they don't always want them. Sometimes knowing they paid a bit more for something reinforces their choice and makes them feel better—about the purchase and about your brand.

Steve McKee is president of McKee Wallwork Cleveland Advertising, an ad agency specializing in working with companies suffering from stale brands and stalled growth.