If you are having problems selling a good product, don’t slash your prices, double them.  People are more likely to respond to the perceived high value than a decrease value of the product. 

I was just reading a great book, Influence - the Power of Persuasion.  It is a great book with some good insights into the psychology of persuasions.  I love books that explain human behavior, especially when it’s counter to what most people would expect.

Double The Price To Clear the Inventory

There was a story in the book that the author recounted about a friend who owned a jewelry store.  The author had some turquoise pieces that she could not get rid of no matter what she did.  She eventually got so frustrated with having the jewelry taking up space that she left a note for one of her employees before she left for vacation, asking her to sell everything for 1/2 price.  Unfortunately, the employee misread the note and thought that the owner wanted to double the prices of the jewelry.  But a strange thing happened - when the owner returned, all the inventory was gone. 

The jewelry stored catered to tourists on vacation who didn’t know much about turquoise.  They saw a high price on the jewelry and jumped to the conclusion that it must be high quality.  They based their decision on the quality of the product by the price of it. 

This is not an uncommon occurrence - it’s a shortcut that humans make.  Instead of learning all about turquoise jewelry - what’s a normal price, what determines good quality, etc., people trust that an expensive price equals high value. 

This Does Not Always Work

This doesn’t mean that you can go out and double the price of anything that you sell.  For example, if you sell website hosting service and you tried to double your prices, you would lose a lot more revenue than you would gain.  There are a few conditions that have to be in place for this to work:

• Your product is not a well-known commodity.  If you sell gas or milk or TVs, you won’t be able to increase your prices.  Your product is almost identical to your competitors and your customers will know enough about the prices to realize that your prices are too expensive.
• Your product is of low quality.  Remember, the key is that consumers expect high quality for high prices.  If you sell an obviously shoddy product (e.g. - obviously fake or bad turquoise), you will have a pissed off customer base.  You might be able to make a few sales but this is not a business model that will last.

There are other benefits to doubling your price.  You have less customers to deal with, which means less headaches and less overhead to deal with.  The real key is that you can differentiate your product.  If it’s perceived as a commodity, you won’t be able to double the price.  If you can differentiate it, you set the price level.