Pricing Strategy: The Effect of Price on Brand Value

In Japan, a hair cut costs $70 and includes a scalp massage, a shave with a straightedge razor, nose hair trimming, pre-cut wash and post-cut wash.

In America, many barber shops offer cuts for $7 to $10. No scalp massage; no nose hair trimming; no straightedge razor shave. A wash with the cut is the height of customer service.

A market exists for a customer service oriented barber shop. Yet, new barber shops are popping up to compete in the cheap hair cut market. Why?

The Myth

"Price Drives the Sale!" This is the myth that sends business after business into crowded, unprofitable low price markets. Price does not drive sales. It never has, it never will. Value - perceived value - drives sales.

Hypothetical Situation
You have a headache. You go to the drugstore. The store has Excedrin, Tylenol and a generic pain reliever. Which will you buy?

Excedrin and Tylenol continue to sell even with generic brand pain relievers priced as much as 75% lower. Go figure.

Read the entire article here.