The Tragedy of the Last 10%. In it, Seth describes how increasing market share and profitability can come when a company lowers the price of its product by 10%. Sometimes, the same thing happens when the company can re-engineer its cost structure so it can subsequently lower its price by a second, or even third 10%. But eventually, there comes a last 10% that requires the company to cut safety, quality or reliability. When that happens, the lower price no longer matters. Because the customer won't remember how cheap they were. They'll remember that the company let them down.
It spoke powerfully to me, because I see the same dynamic happening in the association world. As desperate as our associations sometimes are to spur greater engagement with our members, we sometimes decide to start lowering the price of our products or services in order to get more people engaged with them. And as Seth describes, that can sometimes work. But in my experience, many associations don't have huge profit margins, so the idea of cutting one, two or three "ten percents" isn't realistic. Almost from the first 10%, the association begins to cut into the resources that are needed to ensure the quality that their members expect.
That results in a vicious cycle of dwindling returns. Lowering the price lowers the value the members receive. As a result, fewer members engage with the product or service. And those that stop utilizing it remember, as Seth says, not how cheap the price was, but how shoddy the quality was. They become less likely to engage with the association in other areas. That lowers revenue to the association even more, and the association may need to make additional cuts that compromise the value of what they provide. And the cycle simply repeats--potentially feeding on itself until there is no association left to speak of.
I'm by no means a pricing expert, but the better strategy, I think, is to do what many associations actually do very well--deliver value and price it at a level that will support its on-going development. It can be a difficult platform to switch to if you're not already on it, but strategic investments in increasing quality--even if they are coupled with increasing prices, can set-up a different kind of cycle--one that actually does lead to higher member engagement and satisfaction.
A quality product, fairly-priced, will attract a loyal user base. And once established, on-going communication with that user base, describing the things you're doing to add even more value to the product they like will prepare them for whatever price increases are necessary for delivering the higher quality.
And even if they don't buy in, they won't be left with the memory that the association let them down. They'll remember that you tried to better meet their needs.
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This post was written by Eric Lanke, an association executive, blogger and author. For more information, visit www.ericlanke.blogspot.com, follow him on Twitter @ericlanke or contact him at email@example.com.