Why Smart Entrepreneurs Make Their Products Affordable, Not Cheap

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There is a difference between making your products affordable and making them cheap. I will explain with an example.
Whenever I teach pricing at my seminars I am always challenged by people that say low prices have helped many products succeed especially as the economy got tougher in Nigeria. An example is powdered milk.
A lot of people could not afford tinned and large sachets of powdered milk but the cheap small ones was and is still a raging success.
You see, these companies DID NOT MAKE POWDERED MILK CHEAPER. They made it AFFORDABLE.
As I type this (in 2017), I took a look at the prices of a particular brand of powdered milk. A very popular one. The price for 850 grams is N2,080 while the price of the tiny sachet of 20 grams is N60. Yes, N60 is less than N2,080 but let’s do some mathematics.
To get 850 grams, you need 42.5 small sachets. So if you want to get 850 grams, you will be paying N60 multiplied by 42.5 grams. That is N2,550. That means the small sachets are actually MORE expensive.
Fine. You paid only N60 which is affordable for you but by the time you buy the 20 gram sachet 43 times, you would have spent more. It is more expensive but they made it affordable. There is a difference between the two.
Another way of making products affordable is through payments in installments. I once priced a seminar at 25,000 or four payments of N7,000. The payment in installments equaled N28,000 which was N3,000 more than the real ones. The latter is seen as a good deal.
I remember in the mid-2000s when everyone that had a good job in Nigeria, (especially bank workers) could buy new cars. Banks were giving out car loans to buy new cars. Brand new cars flooded Lagos roads. If you calculated how much they paid in total over the years for those cars, you would realize that the money paid in total were almost double the original price. But many people opted for it.
Because it was affordable.
The car sellers did not reduce the prices of their cars. That is what a lot of people would do. They would say the economy is bad and not too many people can afford to buy brand new cars. They will keep reducing their prices until they go out of business.
If you don’t have such a strategy, reduce the price for reduction sake. Take a look at a car that costs N5 million. As a seller, would you reduce the price to Four Million Naira or you offer a monthly payment of N100,000 for five years?
Culled from
Akin Alabi’s “Small Money, Big Business”
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