Many factors can influence a customer's interest in buying from your company, especially the price you set for your product/service. The price can attract the right people or drive them away and attract customers who are not your target audience, causing various losses for the company.
The extremes
When a product is too cheap, the customer immediately thinks of the phrase “cheap is expensive in the long run.” In this way, it suggests that the quality of the product/service is low, which will result in future losses. Another perspective about being cheap is that people feel represented by the brands they use, so a cheap brand attributes little value to them.
On the other hand, the product/service considered too expensive starts to represent the company negatively, even as exploitative or overestimated. The public may use it as a common enemy when commenting on prices and utilities, seeing no point in buying something expensive when something cheaper can fulfill the same function.
What determines expensive or cheap pricing?
It's not just the number that counts. A Victor Hugo bag is priced very differently from a Prada bag. The difference between them, apart from the material used, is the way they are sold, the value the brand has managed to add to the products. But why is there so much difference? Is a higher price more profitable? See below.
You already know that adding value is important and you must have studied a lot about it. However, the issue of value is not limited to itself. It is necessary to add the right value to the right audience. The mistake of many companies is trying to educate society to build a new vision of value that is far from its reality. For example: trying to add a value of exclusivity to a community in the state's interior. The value to be added needs to have a direct and symbolic relationship with this audience.
Therefore, the price needs to consider the quality of the product/service and also the value it is providing to the public. For example: A psychologist offering therapy for people with OCD may charge $100 or $400 for their session. Why would someone pay $400 when they can pay $100? For the value! The personality, the proof of skills and knowledge, focus on the niche, target audience, and location... All this makes the value go up or down.
However, if a professional has many references and charges little, the audience she could be attracting moves away and opts for a professional who charges a higher price; after all, price and quality are correlated. If the professional does not demonstrate her authority on the subject and charges a higher price, those who seek her do not find value in her service and do not hire her.
Your target audience will determine what value needs to be added, from the region to the age or financial capacity. People with lower income look for functionality, and people with higher income seek exclusivity. Younger people look for fun and older people look for tranquility. These differences naturally change according to the complexities of the contexts, so it is very important to have the sensitivity to offer your audience the value they are looking for.
What is more profitable
Charging a higher price means selling less and having a high average ticket. This methodology is suitable for services where the professional's time is limited or when the elitization of the brand guarantees a great final profit. On the other hand, those who are in retail and sell popular products can bet on a lower price, thus having greater recurrence and sales volume.
The type of product/service offered will determine which method is more worthwhile. Whether they are popular products sold to a diverse audience or more exclusive products sold to a smaller segment of the population.