The Downside of Price Maniuplation
In his preface to “Start With Why.” Simon Sinek talks at length about the most common form of marketing: Manipulation. This manipulation is accomplished mainly in two ways: price manipulation & promotion. He explains, through many examples, that these strategies are ultimately short-sighted.
Companies often think that offering a limited-time price drop will draw in more consumers, who having tried the product, will return to buy further once the price has returned to normal. Ultimately, Sinek asserts, this ends up being untrue. He says what ends up occurring instead is that the product itself is devalued. A $10 item that is sold for $8 will never again be viewed by customers as worth $10. Once they equate it with $8 they will always equate it with $8.
When the price returns to $10, the number of sales drop, and this leaves the seller with two choices:
- return to the $10 price and accept fewer sales, or
- reduce the profit margin and permanently sell the item for $8
Most eager companies opt for the second option, sacrificing profits for growth. This can be seen in the competition between car services Uber & Lyft. A few years ago, Lyft lowered their rates to compete with Uber. These lower rates also lowered the profits for drivers and Lyft began to lose drivers to Uber as a result. In order to maintain their lower rates & to increase the profit incentive for drivers, Lyft reduced their own 20% commission to 0%. The company chose to make no money at all in hope that the growth would benefit them at a later point.
This is an extreme example but clearly demonstrates what Sinek sees as the weaknesses with price manipulation. Through cutting profits and reaching for growth, companies risk eventually pricing themselves out of business.
Concepts & Ideas from
Start with Why by Simon Sinek