Does charging less than your competitor make your product look inferior?


11

Our monthly subscription is 30% less than our competitors. We also do not charge a set up fee, whereas, most of our competitors charge $400-600. I think our product is "as good" or better than any of our competitors.

Let me add that no one company, in my industry, is a household name. We're all small software companies and depend on sales calls to influence potential customers. I get the feeling that potential customers perceive our product as inferior b/c it's priced a lot lower than our competitors. I'm hesitant to charge more b/c I'm not sure this will solve the problem.

I'll take any recommendations.

Pricing Marketing

asked Jan 3 '10 at 12:24
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Sparagi
346 points
  • Tim, you're a troll. It's easier to take down my site than to deal w/ people like you. Your comment, obviously has nothing to do w/ the question I asked. Get a life. – Sparagi 9 years ago
  • I'm not a troll. I am serious. If you are familiar with the payday loan industry then you know what I am talking about. My comment was general advice on being choosy about which industry you are in. I also realize I didn't address your question - thus another reason why I left a comment, not an answer. If someone in the spamming business asked for advice I would have left a similar comment. The payday loan industry is outlawed in some states for good reason - they are evil. Don't jump to conclusions about me because I am picky about my customers. – Tim J 9 years ago
  • +1 great question. – Anonymous Type 8 years ago

6 Answers


5

There are four ways people perceive your product. You'll want at least three of them to be better than your competitor.

  1. Price. If yours is less, you'll be perceived as lesser quality. That is a fact. However, if your product is first thought of as "as good" or "better" than your competition, then the perception of inferiority due to price will diminish and instead you will be thought of as being "a good deal" which is exactly what you seem to want. Given that, make sure that points 2, 3 and 4 are in your favor.
  2. The professionalism of your website.
  3. Your customer service
  4. ... and of course, your program itself.

If you beat your opposition clearly on 2, 3 and 4, then there is only one reason why you shouldn't raise your price to at least what theirs is.

That one reason is if you're relatively new and they've been around a while longer and have most of the market. Then you'll want to keep your price lower until you become a significant player. By then, you'll be known enough, and use a major revision to bring your price up - but for new users only. Treat your existing customers well and don't force big upgrade fees on them because of your price jump. They'll hate you for it.

answered Jan 3 '10 at 14:17
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Lkessler
1,471 points

3

You don't sound like you're getting a lot of feedback from the sales you're losing. You mention price, but changing/increasing it won't help. Do you have any other feature than price to differentiate yourself. Your site mentions ease of use.

Do you have the staffing to sell this software? If a potential customer asks how can you charge so much less, what is your answer? Since no one is the major player in this software niche, the customers may require a lot of hand holding. I would imagine they are reluctant to change their existing software. You need to identify who the startups are in this industry and go after them.

I worked for a rural water utility billing software company. We were able to convert many clients because many vendors were not upgrading and addressing the Y2K issue. Find a particular weakness in one of your major competitors and focus on going after their customers.

answered Jan 3 '10 at 15:11
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Jeff O
6,169 points
  • Great "A-ha" moment Jeff, and good insight on the "not getting feedback" (which I'm going to turn into a separate question, btw). I don't know if your answer is the best, but you solved my problem. We are not differentiating ourselves enough from our competition, so a lower price is making us look inferior. I think we get caught telling potential customers how much money we can save them that we do not give the credit that is due to our platform – Sparagi 9 years ago
  • The tough part is indicating all of their features that you have included, but yours is more "economical" without looking like a knock-off. – Jeff O 9 years ago
  • If you can include one feature in your next release that separates you from the rest, you can justify a price increase. – Jeff O 9 years ago

3

One jedi mind trick would be to price your software higher and constantly offer discounts ;)

answered Jan 4 '10 at 05:38
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Olivier Lalonde
2,753 points
  • Good one. I received this recommendation more than once. I see this a lot w/ hosting companies that waive their setup fee for everyone. That works for transactional products. – Sparagi 9 years ago

1

Price is always a sticky subject. In your case, you need to figure out what your customers perceive as the value that you bring. Just because a competitor charges more does not mean they are making more money than you or have more or less customers.

I don't agree with lkessler on the price makes your product perceived as inferior straight away. Customers will look around for features and value together. They may wonder why your price is low but if the features, functions and quality is the same, then lkessler's right that they will consider your offering a good value.

If the whole point of this question is to get more customers or more revenue (which is not one in the same), then you need to look at your overall marketing strategy.

Jeff's right on about changing/increasing price won't help you get customers (if that's your goal). I guess you need to think about how you position yourself in the marketplace to obtain your goals. What is your goal? More customer, more revenue or both.

answered Jan 4 '10 at 02:30
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Jarie Bolander
11,421 points
  • I do agree (my opinion) w/ Ikessler when you do not have any brand recognition or the customer is not a "new economy" type of person, a lower price is perceived as less quality. – Sparagi 9 years ago
  • Good point. I did not think of it that way. I still think that price should be not your competitive advantage. – Jarie Bolander 9 years ago

1

Can you use your pricing as a competitive advantage, i.e. by emphasising that you have a more efficient cost structure than your competitors (if in fact you do) which allows you to provide the product at a lower price?

answered Jan 4 '10 at 05:26
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Tessajw
11 points
  • We do use price as a competitive advantage and it works for price conscience customers, but it's the larger customers that want to work with the "better" system that has the better marketing. – Sparagi 9 years ago

0

increase your price and see what happens. then, focus your pitch around something other than promoting you have the lowest price. also ask your customers why they use your product or service. do some research and analyze the responses and then reformulate a new pitch and share the new one with prospects. see what happens.

separately, i would also ask myself if i had an issue behind why i can't increase the price. is it that you don't believe its worth the price? fear of failure? regardless, increasing your price will have a dramatic effect on your bottom line net profits and on your cash flow.

bottom line is right now you are in a position where you need many more deals to grow at the same rate as your competition. they get money up front and bigger margins which translates into more net profits.

i might try adding a $500 set up fee (and waiving some of it if you need to close the deal) and increasing your subscription to within a few points of your competition. then i would put all my focus on other value-adds, features, benefits, etc. and make sure your stuff is at least marginally better than the rest with great customer service and awesome relationships. then, figure out how to keep increasing value over time...

doing this might not make the easy deals come but with a little more hustle, you will be a stronger firm. being the lowest priced choice only goes so far and often is the beginning of the end.

answered Jan 9 '10 at 08:03
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Christopher Mengel
89 points

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