Its common sense tells us that as we raise the price, the number of clients will naturally go down. And this is true, but it’s not the whole truth. The big piece of information that’s missing is that specialist services, as a rule, have the so-called “inelastic” demand. This means that a 15% price hike might produce a mere 2% client flight. Which is important to know, but still not the whole truth.
Because the danger comes from an entirely different direction.The same inelastic demand that works for us if we raise prices, works directly against us if we lower them. Because “inelastic demand” really just means “demand reacts less than expected”. **
No matter if the price is raised or lowered, demand response will be “muted”.**
So even if you lower the price by 15%, you could only get a 2% boost to the number of clients.
That may seem illogical, but think about it: what are the chances you would switch from a trusted specialist (lawyer, translator, designer) that you have worked with before just because some colleague of theirs got anxious enough to offer a discount? You probably wouldn’t even know about it unless they advertised it, and even then, chances are you would not react to it much.
Well, that’s exactly how it all works.
When it comes to pricing expertise, common sense is not only less than common, the situations where it can be applied are also less than universal.