Competing on Price
Kevin Hoctor talks about pricing for software (but the argument has value beyond software). It's specifically in the context of the new Mac App store, but I found this point interesting:
Because our software is worth the price I charge. I also owe it to my customer base to make sure my company is well-funded and continues to provide excellent software and support in the future. The profit curve is not negatively affected by higher prices until you are significantly out of the range of your competition—and by competition, I mean software that matches your software in quality. I've seen too many companies go out of business because they try to compete on price.
That's a point I made a lot while I was at Cincom, and to a large extent it's true - but it depends on where you've set that price. Note the middle section, which I'll repeat: "The profit curve is not negatively affected by higher prices until you are significantly out of the range of your competition"
The problem isn't competing on price; it's deciding on what the price should be without any input from reality. Ask any small vendor who has tried to keep prices up once a Walmart or Target showed up, for instance. You don't have to drop your prices in a constant race to the bottom - but you also can't stubbornly persist in pricing that is completely out of whack with what's going on in the marketplace.
To grow any business, you need to set pricing into what can broadly be called the "fair" range. If you find that there are always questions about your pricing, and that you need to come up with an entire sales spiel explaining your value relative to that pricing - then you have a problem. It's one thing to be Apple, where the prices are higher, but the perceived quality is also higher. It's something else again when only the pricing is higher.
