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AshlynM's avatar

Is it better to charge a cheap price to attract more customers or high price for fewer customers?

Asked by AshlynM (10552points) February 6th, 2017

I always thought the the first one made more sense.

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20 Answers

johnpowell's avatar

Depends on the product. Margin is kinda key here.

Say Dell vs Apple. Dell isn’t much different from all the other cheap PC makers. Dell, HP, whatever,it is all the same shit. They fight on margin.

Apple makes nearly the same stuff but doesn’t race to the bottom. And Apple has a crazy margin.

Earthbound_Misfit's avatar

It depends on what you’re selling. If you’re selling goods with a low-profit margin, then you want to maximise the quantity you sell. Something hand-made or that demands significant customization, is likely to sell for a higher price but with a higher profit margin, so fewer customers might be your goal.

My husband sells specialised products. He has to give his customers guidance on what product will best suit their needs. He’s offering a consultant role as well as providing the products they need. So he doesn’t have a huge number of clients, but he makes very good profit. Other companies in the same field focus on selling large quantities of generic product. So their profit margins are low.

Tropical_Willie's avatar

It also has to do with the amount of technology wrapped up in the product. Paper clips are cheap (low technology) and a high price Tesla auto (high technology).

Mariah's avatar

A balance between the two, of course. Somewhere in the middle of the two extremes there is an optimal point where the company will make the most money. The cost associated with production of the product is a factor too and will hit the business harder if they try to charge cheaper prices to sell more units.

kritiper's avatar

It’s better to just charge a fair price. If you charge a low price, customers come to expect that and you can’t raise prices with out disappointing some. Charging too much just makes them leery of you from the get-go.

stanleybmanly's avatar

There are other factors as well, depending on the product. It may well be worthwhile when introducing a product to the market place to actually sell the gizmo for less than is sustainable in order to establish its desirability

LuckyGuy's avatar

There is a cultural aspect as well.
Back in the stone age (before the internet) I lived in Japan with my family so we had the opportunity to observe Japanese buying preferences first hand.
For identical items Americans would buy from the store with the lower price. Japanese on the other hand would often go to the store with the higher price since they had the impression the product was better.
When buying cookies or treats as a hostess gift the price paid was often more important than the gift itself
For the identical item Americans would openly and freely boast “I only paid $X for this. It was such a good deal!” while Japanese people would leave the gift in the original bag from a fancy store to show they paid much more – and obviously cared more.

Jaxk's avatar

There are many factors to consider in any strategy. If there are many manufacturers of the same or similar product, all with similar quality, you have to compete on price. If, however there is a marked difference in quality or few vendors, you can sell for more and compete on quality. A lot depends on whether your product is considered a ‘Commodity’. If you are selling watches, your competing with Timex or similar watches. If you want to compete with Rolex, your not competing with other watches but rather jewelry. Choose your niche and compete accordingly.

gorillapaws's avatar

If someone is just starting out, I HIGHLY recommend selling less with nice big fat margins. You can only achieve volume cost savings through efficiency improvements. That takes time, experience and expertise, none of which a startup will have. Additionally, mistakes could bankrupt you when you’re talking about high volume/low margin products. Order 100,000 units that fail too quickly from your supplier who used a cheap grade of plastic and you’ve got a catastrophic problem. Another aspect to consider is customer support. Having to support that many customers (orders/refunds/troubleshooting) takes serious manpower (womanpower too).

Darth_Algar's avatar

If you’re going to sell high for few customers then you’d better sell high enough so that those few will view your product as a status symbol, and thus want to but it for that reason. Like the Timex vs Rolex thing @Jaxk mentioned above. Both are watches, but one is a item of utility, the other is an item of status.

Dutchess_III's avatar

You want to sell it for what it’s worth. If you think you can ask more, and you’ll get it, do that. You can always back down to accept only what it’s worth.
You don’t want to sell it for less than what it’s worth, although you’ll get lots of customers who will expect you to keep it up.

JLeslie's avatar

Sam Walton became a millionaire by charging low prices and doing a huge volume.

It depends on the product, and the person you are marketing to.

gorillapaws's avatar

I just want to be clear. I’m not advocating charging high prices/low margins in industries where that isn’t feasible. I’m just saying for a startup, they should probably start off in industries/markets that have high margin product/services. Of course goods should be priced what the market values them.

CWOTUS's avatar

Welcome to Economics 101 and the Supply / Demand Curve.

Response moderated (Spam)
Dutchess_III's avatar

Buy in quantity and sell cheap is the success secret to Walmart.

Tropical_Willie's avatar

Buy low and sell high !

Dutchess_III's avatar

Buy low and sell low, but sell a LOT.

Tropical_Willie's avatar

True story many years ago in a aerospace company, we told one of the design engineers that the item he design was costing $50 more than what we could sell it to an airline. His come back was, “We’ll make up for the loss by having higher volume.” I still don’t know if he was kidding.

Dutchess_III's avatar

I have an aerospace story too. I worked for Boeing, Wichita, in the computer division. This was 79 to 81. One day the phone rang. It was some guy, with a very thick accent, wanting to know how much a 727 cost. I thought it HAD to be a joke, but turned it over to my boss instead of hanging up on him! Damned if it wasn’t a Saudi Shiek, and he bought a 727!

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