High Price CAN be a Competitive Advantage!

Based upon the comments on my recent post "How To Sell Overpriced Services," it's clear that many people don't understand the concept of "selling value." Take, for example, the following comment from reader "Peter Dilger":

This is all about a definition of overpriced. If you mean high priced but offers value, then you must sell the value proposition... [Just] because it is higher priced does not mean it isn't worth the money. However if overpriced means it is not worth the money, then a number of key issues come into play. If you think it is overpriced then you are not selling but conning. No wonder the sales profession is held in low esteem... Is it a tough sale because its a high priced item, or is it truly not worth the money?

"Selling Value" consists of adding intangibles that convince the customer to pay a higher price than if those intangibles were absent. It does not consist of adding tangibles (i.e. things that cost your company something) to make a deal more attractive and therefore more "worth the money." That's called discounting, and it's the exact opposite of selling value.

Selling value INCREASES margins because you're getting more money relative to what you're supplying the customer. Conversely, discounting DECREASES margins because you're supplying more to the customer at the same price.

If getting a higher margin than the competition by selling something that's "overpriced" makes somebody a con-man (as Mr. Dilger suggests), perhaps we should all join a commune and smoke dope all day, because getting the most profit possible (for the longest time possible) is the essence of successful commerce.
Does this mean that you should lie about tangibles in order to create the perception of value? Of course not. But it does mean that you must position tangibles so that they have intangible characteristics that create a greater perceived value in the mind of the prospect.

For example, suppose you're in the web services business, and your engineers spend an hour or two more than your competitors debugging the web sites they create. Here are two scenarios:

Scenario #1: You use the fact that your engineers are more meticulous to position your product as superior to the competition's products, while charging the same price as the competition.

Scenario #2: You point out to the customer that the extra debugging (your market differentiator) could prevent a crippling downtime, and use that fact to justify charging $100,000 more than the competition, even though the cost of extra engineering is only $1000 per site.

If "worth the money" and "overpriced" had objective meaning, then scenario #1 would be "worth the money" while scenario #2 would be "overpriced." But, in fact, scenario #1 is discounting, while scenario #2 is selling value.

This is true even if the chances of the customer experiencing a business-crippling downtime are extremely small. Unless the customer is mentally ill, it's not fraud to raise the issue of a crippling downtime and make that danger appear more vivid in the customer's mind. When you're "selling value," it doesn't matter whether that "value" is based upon objective reality; it only matters that the customer perceives that there is value that justifies the higher price.

For example, suppose the likelihood of a crippling downtime is, on average, about .2% but your extra $1000 of debugging reduces that likelihood to .1%. It is entirely truthful and ethical to point out that your websites are half as likely to experience a crippling downtime as your competitor's, and to charge $100,000 extra.

It is utterly irrelevant that the real difference between your websites and your competitor's websites is negligible in terms of actual stability. If the customer sees value there, the higher price is justified.

Now, let's suppose that there's no good reason whatsoever why your offering costs more than the competition. (Maybe your boss just wants to buy a new yacht.) In that case, it is still possible to transform being overpriced into a intangible advantage, providing that you sell to customers who automatically associate "high priced" with "better." And don't kid yourself, there are plenty of people who think that way.

Look, if you can convince a customer to pay $1 million for a dead cat, and that the customer is delighted with the purchase because it proves that they're so rich they can spend $1 million on a dead cat, you're not guilty of fraud. You're guilty of having a business model with a really, really, really, really high profit margin.

Nothing wrong with that, in my view.

When you're "selling value," it is entirely possible to turn being "overpriced" into a competitive advantage, regardless of whether there is any objective reason for that high price.

In fact, if you're selling to a customer who values a high price and you don't overcharge, you're discounting!!! What's more, you're probably going to lose the sale, and even if the customer does buy, he won't be as happy as if you overcharged.

In other words, there are some situations where an offering is "worth the money" if, and only if, it's overpriced.