If you started working in an already established business you're probably not entirely aware of the issue of trust. The issue of trust usually comes before the issue of pricing.
Trust is divided into two types:
- a trust that your product or service can actually solve a problem ("trusting the product") and
- a trust that you're able to produce such a product or render such a service ("trusting the quality").
Only if people trust you on both accounts will they become your customers and give you the money.
The problem of a new company is the following. If people already trust the product it means that you're entering an established (competitive) market. So you have to show potential customers that you're better than your competition. Substantially better. Because there are usually substantial costs for people switching from their product or service provider to yours (learning curve, sunk cost bias etc.). If you're not substantially better, you have to be substantially cheaper. You don't want to be in this position.
What do you do if you're a company with no trust in quality - i.e. a new company? You create a new market. By creating a new market you eliminate the trust in the quality. Creating a market is hard. You need to find a solution to a problem for which people are willing to pay for. It is hard. Still, it is much easier than entering an established market.
The issue of trust is also important for established businesses, though it is not as pressing of an issue as it is for new companies (with little funding). Why? If two companies offer complete subsitutes (with equal trust under both counts) the cheaper one will win. So companies will lower their prices until they won't make any profit (race to the bottom). If they want to make a profit (and they have to, if they want to innovate and have a buffer for the hard times) they have to create a new market as well. But established businesses don't really wan't to create a new market. Finding a new market is risky. So they differentiate. In other words, they sell the same product/ service at a margin, but they tell people that their product or service additionaly solves another problem that competitors don't. How do they do it? They tell a story. This is the sole responsibility of the marketing department.
