In the Winter 2010 issue of my pricelist, I dispelled the myth about dealers who offer to pay the highest prices for your stamps when it’s time to sell. It’s time to dispel another myth. Although my example will use stamps to make the point, this tactic has been used in other businesses.

The sales shtick is something like this, “Buy this stamp from me because I offer the guaranteed lowest price.” Don’t fall for it. It’s not true.

I never understood the psychology behind this claim until I took a course during my Masters in Business Administration with Dr. Kafka. He explained it in simple words and it really clicked for me. I hope this clicks for you too.

Suppose you have a stamp for sale at $100 and you claim to have the guaranteed lowest price.

First of all, some people will buy from you based on that claim alone. They take you at your word and buy from you without looking elsewhere. You would be surprised how many people fall into this bucket. They buy based on the face value of the claim about having the guaranteed lowest price.

Second, suppose another dealer has the same stamp for $90. Let’s assume your cost is the same as your competitor. If someone notices the difference and brings it to your attention, you made $10 less profit. However, you still made the sale and you still made a profit. Therefore, you took a sale away from your competitor.

This last point is the most important one. How many people will buy the $100 copy from you and look for a lower priced copy after the sale? The truth is, almost no one does this. The psychology is very easy to understand. After you buy the $100 stamp, you won’t look for a cheaper copy. You already got the guaranteed lowest price, right? So why look further? You’re wasting your time. Once it’s purchased, it’s out of sight and out of mind. If someone else has a lower price next week, you’ll probably never notice it. Because you’re looking for the next stamp you want, not for a stamp that you already have.

It’s rare that someone comes back after a sale and complains about a lower price they found elsewhere. If they do, you give them the $10 back. You still made a sale and you still made a profit. However, you made a higher profit from the rest of the customers who bought at the higher price and forgot about it.

Guaranteed lowest price schemes only benefit the seller, not the customer. Sellers make a higher profit on many sales. They take sales away from competitors. The higher profits make up for dealing with the few complaints that come in from customers who actually check other offers.