Who Says Customers Won’t Pay More?

Pricing strategies that give consumers — and retailers — exactly what they want.
  by Rick Segel

     Perception is reality. What customers believe is what customers believe. If you tell customers that something is a good deal, they are usually skeptical and have to see if for themselves.

     And I don’t care how long or strong the relationship is. It’s just a fact of life. After all, shopping is a contact sport, and savvy buyers are on the hunt for the best deals. The retailers are also in the game to capture as much of the customers’ money as money and have the customers thank them for helping them get what they want at a price they believe is fair and equitable to all.

     Now customers are using “guerrilla” tactics with their bar-code-reader cell phones and all of the shopping bots that search the Web for the lowest possible prices. They wait for our sales and then use our coupons on merchandise that has already been marked down 19 times. They cherry pick our promotions, and loyalty is almost a thing of the past. But without our customers, we don’t have a business!

     We usually try to do the right thing, but our customers want promotions that they understand and believe give them the best deals. Sometimes the most popular promotions aren’t the best deals for customers, but they are perceived to be the best.

     Here are a few examples from an article in The Wall Street Journal that drive home the point: The perception of a great deal is more important than having a great deal.

See how you do on this little quiz.

  1. Which represents the biggest percentage discount?

    A) $300 off a $1,299 refrigerator
    B) Buy one sweater at regular price of $40, and get another one at 50 percent off
    C) Buy a $10 bottle of perfume that is marked down from $15

    Most people believe that option A is the best deal because they know that their saving $300, and that is a substantial amount. But it is a savings of only 23 percent.

    The offer of “buy one, and get the second item half price” is a perennial favorite that customers understand and love. But that is only a 25 percent savings, and if the customer buys a second item that costs less then the first item, the percentage goes down.

    Option C is a 33 percent discount. Option A sounds terrific, but it is only a 23 percent discount, and the sweater deal is only a 25 percent discount. But don’t be afraid to do A because customers love to know how much they are saving, and B just works.

  2. Which represents the biggest percentage discount from a $1,000 item?

    A) Half price
    B) 25 percent off, then an additional 25 percent off the reduced price
    C) 20 percent off, then an additional 20 percent off the reduced price, and then an additional 20 percent off the reduced price

    The answer that many customers believe is the best deal is C because they think the discounts add up to 60 percent. In reality, however, the discounts total only 48.8 percent.

    Option B is perceived to be the same as half price, but the total discount is actually only 43.75 percent.

    The answer is A: half price. It might not be as exciting as the other offerings, but is the best one for the customers. Most, however, would choose one of the other options first. Go figure.

  3. Which represents the best discount to the customer, and which option is the most powerful promotionally?

    A) A $25 gift card with a purchase of $100 or more
    B) $20 off on a purchase of $100 of merchandise
    C) 20 percent off the entire store

    The strongest promotional price proposition is definitely option A because 25 is a bigger number than 20 (in either percents or dollars). But to get option A, you have to spend $100 in the store, which is good for the retailer, for a number of reasons. First, only 88 percent of gift cards are fully redeemed, and, more importantly, the customers have to come back to the store or website. Some customers will use the gift card as a gift, and this has the potential to bring in yet another customer to the store.

    The $20 off in option B means you make an $80 sale. You left money on the table.

    And if you offer 20 percent off storewide (option C), customers will probably buy less than $100, and it just isn’t as good for the retailer as the other two options.

     I don’t think we’re manipulating customers with these pricing strategies; we’re simply giving them what they want, and that is the essence of retailing.

     For everyone who worries about all of the implications of adopting such pricing strategies, my advice is consistent with my favorite quote: “Let’s not worry about the mule going blind; let’s just load the wagon.” After all, we are just giving customers what they want.

Rick Segel is a passionate retail business development specialist, public speaker and author. His diverse business background and expertise enable him to counsel businesses in a number of industries by identifying universally applicable secrets of success that are essential for making a business succeed.

As a speaker, he has enthralled audiences in 49 states, in 10 countries, and on 5 continents. He is a member of The National Speakers Association (NSA) and is a Certified Speaking Professional (CSP).

Mr. Segel has written 13 business management books, including the best-selling Retail Business Kit for Dummies as well as Laugh & Get Rich, Wowing Them Into Your Store, Becoming the Vendor of Choice and Essential Online Solution.

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