Who Says Customers Won’t Pay More?
Pricing strategies that give consumers — and retailers — exactly what
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.
Which represents the biggest percentage
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.
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
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.
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
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.
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.