When can a higher price create more sales?
Legendary investor Charlie Munger (Warren Buffet’s business partner) asks this rather interesting question. Read on to find out how it relates to internet marketing!
So when do you think that a higher price creates more sales?
Here’s a few situations were a higher price can create more sales:
- Luxury goods- the perception of a higher price equates to higher quality. It also has the positioning of exclusivity and conspicuous consumptions.
- Ability to bribe purchasing agents- the higher price creates a large amount of extra cash by which governement officials and purchasing agents get their organizations to buy the products or services.
- Sales incentives (including affiliates)- by paying salespeople more for selling your product than other brands. This relates directly to internet marketing. Affiliates are enticed to promote high priced items because of the high financial incentive.
I don’t feel that this practice is unethical as value for information products is largely perceived. If someone is willing to pay $2000 for a product that’s ok with me. As long as the product delivers on it’s promises and makes no false claims, I’m all for a company asking for any price they feel they can get in the market. The fact is, the higher the price, the more competitors see an opportunity to make a profit as well. And that high price position won’t last very long. Especially with information products which hold no real barriers to entry, as ideas can’t be copyrighted or trademarked (exceptions do exist for business processes etc, but i’m not a lawyer so don’t quote me on this).
What’s your opinion on using higher prices to increase sales?
Do you see any other situations where a high price will increase sales?
Post your ideas/opinions below.