Back to Blog

September 1, 2022


The High Cost of Free

Shannon Carlson
The High Cost of Free

I had a client tell me recently that their company is [basically] giving away a high-quality luxury product for free.  

Free? Hmm. 

I asked, “Do you think your product isn’t valuable?” After a brief pause, the client said she believes in her product, so I asked why it’s being given away.

The value of assigning the right value

When a product is discounted to the point it is basically being given away, the product then has little perceived value in the marketplace. In fact, a deeply discounted price sends the message that there’s no reason to pay a fair price and certainly not a premium price. I’m not talking about occasional promotions or small discounts used as marketing tactics, rather I’m talking about pricing your product too low.

If you give your product away or discount it too heavily, it may carry zero value to your target audience. Conversely, you can use price as a means of influence and persuasion by aligning product price with product value or even pumping up the price to position it as a premium to make your product even more appealing.

Bargain basement pricing can backfire

When a superstar author quoted a modest rate for his speaking fees at an association’s annual convention, event organizers quickly second-guessed their decision. They expected to pay 90% more than his heavily discounted price, which overshadowed the author’s Ivy League doctorate, strong media presence, and keynote speech quality.

In a movie about Martha Stewart, there’s a scene at a local shopping market in which she priced her pies so low that there was no appeal to buyers. After she increased the price exponentially, Stewart was bombarded with buyers and quickly sold her entire inventory.

If price is a proxy for quality, then bargain basement pricing signals low, no, or unsure value, all of which are caution signs – or worse, stop signs.

The flipside

In Robert Cialdini’s New York Times bestseller “Influence,” he cites how a jeweler successfully sold out of turquoise jewelry after accidentally doubling the price instead of reducing it to half-price, which was the original intention. Buyers found the inflated price irresistible, despite having ignored turquoise up until a price increase that reflected a high value in the minds of buyers – and without explanation.

In this example, price was a source of influence and persuasion, which is yet another important lesson.

Food for thought: the 1-2-3 checklist

To avoid bargain basement pricing and its subsequent pitfalls, and to assign a fair or premium value to your product, start by asking yourself three important questions.

1.  How can I show that I value my product?

2.  How can I make my product more valuable?

3.  Am I doing anything that gives off a distinct impression about the value – or lack thereof – of my product?

Building on that last question, brands oftentimes lack the right brand association, or theme that truly represent the target audience. Since all roads always point to the target market, the strategy for your product and brand must be aligned with the consumers or businesses you are trying to reach and the demographics – age, gender, geography, purchasing power – of your target audience.

The psychological sweet spot

In all fairness to the complexity of pricing, finding the sweet spot in buyers’ minds may require adjustments over time.

Don’t be afraid to adjust your price if market or economic conditions change. Price increases are becoming more and more common as the economy and other factors ebbs and flows. You need only look to various industries to see the importance of adjusting your price if circumstances mandate it.

√ Restaurants are a prime example of the necessity of being price nimble due to supply chain and the market fluctuations of their products.

√ Manufacturers typically follow cost-based pricing, and as the costs of materials change, so, too, must their prices.

√ Uber and Lyft constantly change their prices all the time due to demand. 

√ Businesses in retail, travel, hospitality, and e-commerce use dynamic pricing strategies to adjust to seasonal demand by increasing prices when demand is high and decreasing prices to stimulate demand.

The point is, prices change all the time in various industries for widespread reasons. On a more expensive product or service, getting the price right the first time can make all the difference for your bottom line. And if you are going to add a significant premium to your product, you need to make sure your marketing can showcase the value.

The Final Chirp

Keep in mind when pricing your offerings that it is always easier to reduce the price than it is to increase the price. Pricing your product right the first time can save you incorrect brand perceptions and lost money later on. That’s why it’s critical to price it right the first time. If you decide to increase, customers may eventually pay, but be ready for some backlash. Just be careful discounting or introducing new offerings at a low price, you may not ever capture the value you deserve.

If you’re looking to reach your target audience to ensure profitability and sustainability, our team of marketing consultants welcomes the opportunity to discuss your product, your brand, and your value, which all starts with making sure you understand your audience. Let’s chat about the value you are bringing to the market with your offerings.

Prepare for takeoff.

Tell us a little about yourself and your business.