It’s uncommon to think about losing something as a sign of success. There are, however, times in business when losing a key asset means that you’re company is winning. For example, early in the life of a company, losing customers might be a sign that you’re getting it right.
This is particularly true when a company is offering a premium product or service. When striving to sustain a price point higher than lower quality competitors a company is often forced to choose between maintaining their prices or keeping all of their customers.
Selecting a pricing strategy is a critically important decision. Here’s why:
In most cases, sustaining healthy margins keeps companies in a virtuous economic cycle. Higher prices allow companies to employ more expensive talent or use better parts, sustaining their product quality.
Typically losing price position, even if temporarily, might send a company into a vicious cycle. Margin compression makes short-term revenue declines untenable, forcing decisions, such as further price reductions or downgrading team or product quality, which might further reduce margins.
In a battle to maintain a premium price point, losing some customers is a sign of success. If your prices are higher, reflecting unique quality, some customers will defect or not buy to begin with, unless you cave in. In a world where failure is strongly frowned upon, however, losing even an important customer can test a founder’s resolve around a given strategy.
In order to weather these moments it’s important that founders view losing customers as a sign of success. To do this founders should recalibrate their goals. If you have a 100% close and retention rates, maybe you’re underpricing? The better target might be to lose 5, 10 or 15 percent of your customers to ensure you’re positioned to succeed in the long-term. In other words, if you’re making a premium play, you may want to apply uncommon logic and aim to price so that you lose some customers.