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The Price is Right... or Not
The Price is Right... or Not
Gabriel in Columbia, MD asks:
I have seen that top producers have built their businesses by making less on every deal but doing more deals. What are your thoughts on this? Should I lower my price to be a top producer?
I applaud these top producers, but I have a totally different take on this.
If you live by the price sword you will die by the price sword. Too many businesses make this mistake. Your goal is to create a competitive price bubble by offering a Big Zig and enticing people to want what you have to sell.
There are 4 rules to create a competitive bubble and avoid the price game. Lowering your price should be the LAST thing you do. It’s what you do when you run out of creative ideas.
Here are the 4 strategies that keep you from winning “the race to the bottom.” That game is a game that you can’t win (unless you are Walmart).
Rule #1: “Wants” versus “Needs”
What’s easier to sell: aspirin or vitamins? Easy, right? The answer is aspirin. People want to relieve their pain.
Now, what do you think sells more: appealing to wants or needs? The answer will surprise you. We all “need” to spend time on our taxes, but we “want” Ben and Jerry’s Chubby Hubby ice cream at the exorbitant price of $3.88 for a pint. I could have bought a half gallon of another brand in a big box for only $2.15! But you see, we buy what we “want,” not what we need. So why not change your sales strategies to capitalize on customer wants rather than just selling customers what they need?
There are so many auto brands today. Yet despite the high price of gasoline, several people I know bought gas-guzzling luxury cars like Mercedes or BMW or high priced sports cars. Why? Because it was something they wanted. Perhaps they rationalized by justifying their decisions based on resale value, a great warranty, or explaining that a prestigious car is something they need for business. But it’s the combination of logic and emotion -- wants and needs -- that drove them to buy the cars they really wanted over cheaper alternatives.
If you understand your Hungry Fish and make your product more desirable, then you can get away from (solely) price-based sales. It’s why you bought Ben & Jerry’s for more than the generic brand. It’s simple…. you wanted it.
Rule #2: Make it an “Experience”
Why do people spend $125 per ticket to see a Broadway show rather than seeing the same show at a local theater? Because of the experience that comes with seeing a Broadway show. It’s the same reason why people prefer to shop at Nordstrom (live pianist playing in the store) or Wegman’s (tantalizing food demos). It's also one of the reasons people opt for fine dining... the experience.
Of course, the “experience” doesn’t have to be showy. You can create an educational experience as well. For example, I have a friend who has a group, The Golden Eagle Club, for seniors. He has worked in the financial industry for years. He educates seniors with travel, entertainment and practical investment advice, and by doing so, he creates an educational experience and builds a connection with his audience. He knows his subject and presents it very well -- but he makes it part of an experience. The seniors love to go to his events for the camaraderie and the education. By the time he’s finished, they are no longer thinking about price alone. Why? Because he has become their vendor of choice.
Let’s look at the mortgage industry as an example. A lender who is a commodity will face tremendous competition. But the mortgage lender who does something more than just meet the “needs” of clients, can charge more for giving them something they “want.” Whether it is connections surrounding the transaction, education about their best options, or a smoother lending process, the lender who adds value, services wants, and builds relationships is going to get the deal. Yes, price will undoubtedly be a factor but, it will no longer be the single guide in making a decision.
Rule #3: Don’t Get Your Customers Hooked!
Like dangerous drugs, low pricing can become ingrained; once you get your customers addicted, it’s very hard to break them of the habit. For years, Procter & Gamble gave away so many coupons that their buyers got hooked. It reached the point where many customers wouldn’t buy P&G products without coupons in hand.
Likewise, Bed, Bath & Beyond offeres so many coupons that customers learned never to buy at regular prices, since the next coupon is only a few days away.
Now, there’s a place for cutting prices. You can use loss leaders to draw people into your store if you have a program in place that then nurtures your relationship with them. Many businesses today are using daily deals with Groupon or Living Social, but most neglect to build the relationship. The restaurant that draws customers in with an amazing offer needs to build that one-time experience into a new, long-term customer. The second sale is much more important that the first one. Sadly, few businesses seize the opportunity, and most of the restaurant’s customers won’t return after the Groupon deal. But what if the restauranteur plans out how he can get the next sale? What if he immediately gives them a gift for their next visit, like a free glass of wine or an appetizer? It’s likely that he can drive repeat visitors -- and start building relationships with his new customers.
Think about relationships, not one-off sales. After all, you’re looking for customers who “want” what you sell, not price addicts who “need” discounts to get high.
Rule #4: Riches in Niches
Finally, you can avoid commodity pricing by focusing in on a niche. Gary’s Uptown Restaurant in Northern California had an unusual niche: bald people. Since Gary is bald, he reached out to his “brotherhood” and offered them more for less for a time. Here was the deal: every Wednesday, if you were 100% bald, you could eat for free. If you were 75% bald you'd get 75% off, 50% bald, 50% off, and so on. The idea generated a lot of bald customers, lots of humor (do comb-overs get a discount?) and quite a bit of publicity, including a story on CBS. It also allowed Gary to build relationships, so that when the Big Zig ended, he had an ongoing stream of regular customers. What is your special connection? Look inside and ask: With whom do I resonate?
A mortgage and insurance broker I know specializes in selling to volunteer firefighters, and another broker specializes in selling to home brewers in their magazine. He’s the ONLY advisor in that magazine because nobody else thinks of going there. It’s about resonating with a niche market, and it works because it is no longer all about price.
Bottom line, you can always sell at low prices to meet needs. But you don’t have to if you:
Make your product into a “want,” not just a “need”
Provide an experience
Have a price scheme that may temporarily lower prices with a thought-out path for building relationships
Focus on a niche where you can resonate with your market
Tell us your story - do you market to a niche audience? Do you offer a special price for a select group? Share it with us here.
Keep sending in your business, marketing, and work/life questions to firstname.lastname@example.org. We’d love to answer yours in a future column.