Price Versus Quality 2: Does Lowering The Price Of An Item Increase Customer Support?

October 25, 2014 at 7:18 pm 1 comment

I’ve been selling products to the Poser user community for over 10 years and I’ve seen a number of changes. One of the biggest is an almost race-to-the-bottom mentality towards pricing. While I understand that low prices increase sales, I continue to wonder how this affects the overall marketplace. See my first blog about Price Versus Value for Digital Products for some of my early thoughts, but this time I want to talk more about pricing from a seller/ merchant point of view.

As an introduction, I heard a story once from a guy who used to work at tech support for a big-name computer company. He said that when they dropped the price of the computer, every Tom, Dick, and Harry bought. People who had never used a computer before were now purchasing!
At first, the company was very excited about how this promotion had increased sales, but then they started to see their tech support calls increase.
People would call in about the simplest issues… though to beginners, the “simple issue” was pretty complicated. One of the best (or worst) calls he told me about was when a customer complained that they couldn’t connect to the Internet. It took the tech support person an hour to figure out the customer didn’t have an internet service provider!

Basically, it’s the theory that as you raise your price, only “experts” will buy your product, the “simple” customers start to get weeded out, and the “simple” tech support calls stop coming in. This may sound elitist, but what clientèle do you want: the “dirt cheap” crowd or the “willing to pay a little more for a quality product” crowd… keeping in mind that the “want it cheap” crowd may actually cost you more in technical support or other areas.
If a company has a customer support department, then there’s a monetary cost. If you’re running your own business, there’s a time cost: every minute you spend dealing with customer service issues is a minute you could be spending on another product.

So, what does this mean for $1.99 pricing and 90% off sales which I mentioned in my last blog?

Here’s another example:
Suppose Bell Computers runs a sale where they price their computers at $200. With such a low price, this appeals to new people, even people buying it for their grandma: “It’s just like a typewriter and you can send us e-mail.”
These people are brand new, and like the earlier example, they will use the services of tech support more often… whether “tech support” is their family or the computer company.

On the other hand, Martian Computers offers a $3,000 computer aimed at high-end gamers. These customers are very experiences with computers already and they can usually trouble-shoot any problems on their own. They want the best and the fastest and they’re willing to pay for it.

Going back to Bell Computers, how much time will their tech support people spend just teaching people how to use computers? Is that a good use of the techs’ time?

Am I saying new users are dumb? Not at all, but they are uneducated. So, the price of an item has to include how much education you expect to give them: The lower the price, the more education may be needed. The higher price, the more the item appeals to experts.

In the world of digital goods, many people don’t offer support for items they’ve priced for free. They simply say, “If you don’t like it [or can’t use it], then just delete it.” This mentality also applies to low-price items: some people would rather delete a $1.99 product they don’t understand rather than spend their time asking questions about it.

And if you’re a merchant, you need to consider about your compensation. Maybe I’m being a “capitalist American”, but if you price your digital product at $1.00, how are you going to make money? The obvious answer is: “Sell lots of them”.
Sure, that’s one answer, but think about this: suppose the market value for your item (a digital car model, for example) is between $10 and $15. But, you want to undercut the competition so you price your item at $1.00. Back to the question: if your item is priced at 1/10 it’s market value, how will you make money? Will you really, honestly sell TEN times as many copies at $1.00 to match ONE sale at $10.00? Will you sell FIFTEEN copies at $1.00 to match ONE sale at $15?

Maybe you will and maybe you won’t, but keep in mind what I said above: the person who buys at $15 probably knows what he’s doing and may not ask questions. The 15 people who bought at $1.00 may have all matter of questions, including very simple questions about how to download the product or load it into their software program. Now, sure, this is a generalization, but you get the idea.

I hear people saying “But I don’t want to be greedy and charge a lot for my product”. Is it really “greedy” when you’re pricing your item at ONE-TENTH the market value? Being “greedy” would be to price your item at two or three times what the market thinks it’s worth.
And what exactly is “greedy”? Is it “greedy” for an attorney to charge $100 an hour for his services? Some people would say yes, but most people would realize that a rate like that signifies that the attorney has knowledge and experience.

How about the old joke about the mechanic:
A guy’s car breaks down and he spends two hours trying to fix it, but nothing works. He then invites a mechanic to look it. The mechanic spends five minutes looking at the engine, replaces a part and says “That’ll be $100.”
The guy replies, “$100!?! Are you kidding? You spent five minutes and replaced one part!”
The mechanic replies, “You’re not paying me to replace the part- you could have done that. You’re paying me for my experience to know where to look and what part to replace.”

So, if you ask charge $1.00 for your product, are you short-changing yourself in an attempt to get more sales, and in exchange for more customer support?

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Entry filed under: Digital Goods, Vendor Advice. Tags: , , , , , , , , .

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1 Comment Add your own

  • […] (The argument about whether it’s better to have 100 customers buy at a cheap price or a few customers buy at a higher price was covered in my previous blog: Price Versus Quality 2: Does Lowering The Price Of An Item Increase Customer Support?) […]

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