Avoid The Commodity Trap: Raise Your Price!

I recently suggested an unconventional idea to my consulting team.  I proposed that we tell our clients and prospective clients this:

We are the high price leader.  

NOBODY charges more than us.
In fact, if you find a company that charges more, we will gladly match their higher price AND add an additional 10%!  

We will NOT be over sold!

My team enjoyed a good chuckle… until they realized that I was serious.  I suggested this scenario because I wanted them to think long and hard about how we can continue breaking out of the commodity trap.

What Is The Commodity Trap?

Suppose you own and operate a wedding cake business.  You hone your baking craft to a sweet science.  You develop an extensive catalog with designs that range from traditional to ultra modern, complete with pricing options.  You build a great website.  You join the local chamber of commerce.  You educate yourself about what your competitors are doing and how much they charge.

In other words, you do exactly what every other wedding cake business is doing.

Now, suppose I am in the market for a wedding cake.  I am considering buying from you as well as from two other legitimate companies.  To me, it’s all just cake.  You all offer great options that suit my needs and the online reviews report that all three businesses offer high quality and great service.  Everything appears equal.

In this scenario, how do I choose?  It’s simple.  I defer to the most obvious delineating factor: price.  Now you, the conscientious business owner who pours heart and soul into their work, find yourself unwittingly stuck in the commodity trap.

The commodity trap occurs whenever a buyer encounters value vagueness.  If a buyer cannot distinguish a true value advantage, they default to a price-based decision.

Why Does The Commodity Trap Exist?

To understand the phenomenon of the commodity trap, it helps to understand how our brains function when we face a purchase decision.  The decision making process – for any decision – is a creative exercise that employs our creative right-brain capacities as well as our left-brain logic.

Stress hinders and ultimately constricts creativity.  Making a purchase decision is, to one degree or another, stressful.  Therefore, an inescapable part of making a purchase decision is seeing through the fog of stress in order to make a creative choice.  If too much stress exists, making a choice becomes very difficult or even impossible.

Our brains default towards cognitive ease.  Our subconscious self asks the question, “How do I make this decision with as little pain as possible?” and our conscious self acts in response to that question.  This is how we become victims of the commodity trap.  Our own brains make us commodity trap targets!

In his book Thinking, Fast and Slow, Dr. Daniel Khaneman calls the human tendency towards the path of least pain “the law of least effort.” The founder of behavioral economics defines it this way:

“… if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action.”

It is as simple as that.  Making a purchase requires a decision.  Decision-making is stressful.  Our brains inspire us to avoid stress.  So, when it comes to sales, what is the “least demanding course of action?”  Absent a clear value advantage, we make decisions based solely on price.   In other words, if all else is equal, I will take the cheapest cake.

How Can Your Business Escape The Commodity Trap?

When I announced the plan for my company to become the “high price leader” my intent was not solely to raise our prices (although we do regularly raise prices based on market demand).

I was making the point that we must provide such overwhelming value that prospective clients will easily realize that this is not an apples-to-apples comparison.  Yes, we may charge more, but only because we provide substantially greater value.

I know nothing about wedding cakes, but I know a great deal about adding low-cost value in order to promote a high-price product and service.

If I operated a wedding cake business, I would ask past clients to send glowing email referrals to prospective clients, complete with detailed testimonials about the quality and service I provide.  I would constantly research the latest recipes and design trends and techniques.  I would give tours of my kitchen and tout my awards.  I might offer to communicate with the wedding coordinator, florist, and photographer in order to ensure coordinated motifs and designs.  And I would definitely post gorgeous cake photos with personalized captions on Pinterest and Instagram, and feature specific cakes (and corresponding stories of the couples I made them for) on my website or blog— all to enhance my customers’ sense of personal, customized care.

And, I would charge more than my competitors.

This approach equips customers to make purchase decisions for the right reasons.  It takes guts to choose a higher priced option, but when the greater value is glaringly obvious, people will make that choice and they will feel good about it.

When customers make a buying decision based purely on price, they de facto choose to live with the regret of knowing that a better option existed and they failed to choose it.

Of course, you can’t really say this to a customer.  But, you can provide clear and indisputable proof of how much additional value your company has to offer.  As they say: “Buy the most you can afford and you will only cry once.” It’s true!

Do not become another unwitting victim of the commodity trap.  Give your customers so much value that price becomes a non-issue.  Dare to become the high-price leader!