Newbie managers and sales people often want to lower prices to increase sales. “It’s simple,” they say, “if we lower prices, we will sell more units and make more money.”
The first part of that is typically true. More units will be sold at a lower price.
The second part is the problem. Not enough extra units will be sold to increase revenue.
The math behind this is difficult for many people to grasp. How can we sell more units and bring in less money?
They don’t consider that we will bring in less money on the units we would have sold at the higher price if we had not lowered the price.
One day, I was having trouble explaining how this worked to a group of sales managers. One of them helped out with a simple story that went something like this.
It’s like pork rinds and potato chips. Some people love pork rinds. Some love potato chips.
What you’re saying is lowering the price of potato chips won’t get enough pork rind lovers to switch to potato chips to cover the money you lose by selling chips at a discount to chip lovers, people who would have bought the chips at the higher price.
Further, rather than trying to sell pork rind lovers something they don’t want at a discount, try selling them something they do want (pork rinds) and see what happens.