“You Can Be Too Cheap” - The Surprising Pricing Strategy From a Hotdog Entrepreneur
In 1916, during the first world war, entrepreneur Nathan Handwerker decided to open his first hotdog stand on Coney Island, NY.
Like many new business owners, he was unsure how to attract new customers because Coney Island already had several successful hotdog vendors. He knew his hotdogs were different and superior to anything else being sold, but he also knew that neither of things would be enough to lure people away from the other, much more established hot dog stands.
So Handwerker decided he would undercut the competition. Everyone was selling their hotdogs for 10 cents a meal – so Handwerker priced his hotdogs at a mere five cents. Although Handwerker's hotdogs were made from his wife's secret Polish recipe and made from real beef, his stand attracted almost no customers.
Why wasn't his pricing strategy working?
Visitors to Coney Island viewed these new half-priced hot dogs as substandard, and they quietly wondered what cheap and dubious ingredients they contained.
Undeterred, Handwerker upped the ante. In addition to offering his hotdogs at half price, he also offered free pickles or a free root beer with every purchase.
But still sales remained flat. If anything, giving away the free pickles and soda cemented the perception of his hotdogs as being inferior.
It wasn't until Handwerker came up with his "big marketing idea" that his hotdogs started selling. He recruited doctors from a nearby hospital to stand by his shop and eat his hot dogs while wearing their white coats and stethoscopes (if this sounds a bit crazy, remember this happened when doctors also promoted camel cigarettes). Because people respect physicians' opinions, customers figured that the food had to be good if the doctors ate there. So they soon started buying from Handwerker and his "Nathan's Famous Hotdogs" took off.
How many times have we all missed out on something great just because of our preconceived idea about its value?
Don't be tempted to discount your value unless you have an excellent strategic reason for doing so.
Remember that people's perception of your value is the sum total of all your marketing plus their actual experience with your business.
If their perception of your company is inaccurate or they keep comparing you to lower-priced competitors, this is a red-light signal that your marketing needs an overhaul - particularly your marketing message (see Step 2 of the Client Stampede Formula).
As the story of Nathan's hotdogs shows, without the right marketing, being too cheap can bring about the same results as being too expensive!
