Speaking Out with Speaker's Roundtable
Volume 3, Issue 31 July 6, 2004
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* In This Issue:
* A Note From Speaker's Roundtable
* Pricing Strategies That Make Sense
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* A Note From Speaker's Roundtable
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Welcome to....
* Pricing Strategies That Make Sense
by Thom Winninger
Low pricing is not a strategy! May I repeat? It is not strategy to
discount price and give up your margins. Value pricing is a
strategy and one you can count on to bring you business and
continued success in the price war battle.
There are a number of ways to price and in my opinion, bold
faced discounting is not one of them! Too many businesses are
giving into the pressure of discount pricing and end up losing
the battle when, if they applied some solid pricing strategies,
they could retain loyal customers and gain new ones who shop
for value and not price alone.
I understand we all must at one time or another, face the issue
of discounts and competitive pricing but it does not need to be
at the sacrifice of the profit margin. Two solid strategies that
can aid you if you find yourself in a price wars game are:
Package Pricing
Value Pricing
This time around we will focus on Package Pricing. Package
Pricing involves using a tactic called "lead item pricing". This
involves pricing an item comparable with the discounter in
your market and then offering your customers "package
pricing" when they get in the door. So in other words, if I am
pricing an item at $999.00 because ABC Discounts down the
street has it priced at $999.00 as well, I want to make
absolutely sure that the item I am pricing is something for
which they will want to add items immediately. This does not
mean selling accessories to add on to the price, or the next
time around, but showing them the way to have the other items
they will need right away at one price.
How do I accomplish that? I merchandise a like item right next
to the "lead price" item but it is "packaged priced" at
$1499.00.
Yikes! Most customers will choose the "discount" item, right?
Not necessarily! If I do my job right, I will show them that for
$500.00 more they can get so much more VALUE, the price
difference disappears. I have elevated the higher priced item
off the floor, put spotlights on it and gave it more attractive
signage, placed well dressed mannequins around it and my
customer thinks, "Wow, for only $500 more look at all I get!"
Customers see value, not price. You don't give them the
opportunity to just "think" about the options they would like to
have; you package them together so they perceive they "must"
have them and can get them all at one easy, value priced
package. It's what we call, "price point perception". The
$999.00 item gets their attention, but value does it's job, rises
to the surface and gets you the sale and the added profit
margins.
If you can "package" your products or services together for a
great value, the first time purchaser is far more likely to walk
out of your business without ever giving the discounted single
item a second thought. After all, you've made the price
difference pale in comparison to the value. Although I
discourage discount pricing, if you find yourself in the market
with discounters, "price point perception" can work for you.
Customers must not perceive that you are so expensive they
won't even check with you to see what you offer. The strategy
is this: pick out an item that you can effectively promote that
has a price point comparison with the idea in mind that your
customers will never buy that one anyway. They will buy the
packaged one, but you have won the opportunity to get them in
the door. The rest of the job is up to you.
The second level, or Part B of Package Pricing is to do away
with the "lead item" and present your customers with the
$1499.00 package right up front. The key here is that you have
to be very good at this. You must be able to identify for them
what they are getting for that price. In this pricing structure
you are "selling the difference." The customer must be able to
easily identify or answer for himself what he is getting for
$500.00. Ideally, he should be able to get 3 times the value
compared to the price. So for $500.00 in "price" he should
perceive at least $1500.00 in "value". Value cannot equal price.
Value perception must exceed price reality. In doing so, you
can effectively give your customer true value and still maintain
important margins.
For example, a retailer may offer a gas grill at $395.00 that
Walmart sells for $295.00. The customer must be able to
clearly answer, "What am I getting for $100.00 more?" If the
retailer uses package pricing the customer will go home with a
full tank of gas, a set of utensils and a cook book, plus a
coupon good for 2 steaks at the local butcher. He doesn't even
have to show a lower priced item and then try to sell up, the
savvy retailer just packages the value and sells it right up front!
Despite today's competitive discount price wars, package
pricing is a very valid and successful strategy.
Thom Winninger
Member: Speakers Roundtable
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