Use Price Psychology to Sell MORE

coupons and discountsToday, I continue my series on the impact of pricing on market performance. In recent posts, I showed how a high price might INCREASE sales, by making the product more desirable and how to use psychological pricing to increase sales. Today, I’ll talk more about how to price bundles of products and how coupons impact sales.

Bundle pricing

I talked a little about bundle pricing in my last post. But, there are more psychological issues when it comes to pricing a bundle. For instance, an HBR article shows that customers make very different decisions based on the price of products. This suggests businesses benefit from knowing how consumers think about their prices.

Understand customer goals

Knowing what products consumers want most helps in determining your pricing. So, if you’re Dominos Pizza, knowing whether consumers want your pizza or pasta most, helps in determining the price that’ll result in the biggest order. If the consumer really wants a pizza, offering pasta at a lower price might convince them to add it to their order. The opposite is true if the consumer really wants one of your pastas.

In the real world, you can’t individualize pricing, but online, it’s a snap. Just track what product the visitor searched for first when they entered your website — likely that’s the one they really want. At checkout, offer a reduced price for the pasta (or any other add-on) and the chances of purchase increase significantly. The experiment reported in HBR shows consumers prefer this to getting a small discount on the pizza and pasta combination — even when the resulting price is the SAME.

Similarly, add the cost of shipping to your online products (high value) rather than charge shipping separately (low-value).

Offer low-value items free or at reduced price

Sometimes consumers don’t put a high value on certain items in your inventory. Bundling these items free or at a very reduced costs increases the chances they’ll buy items with a higher value. Clinique uses this strategy. A couple of times a year, they offer their free products with a $25 minimum purchase of other products and the lines circle the counter with women who wait for the free bundle before buying refills (and it draws in new customers, as well). The bundle normally includes a lipstick, moisturizer, maybe a mascara and some eye shadows — all in an attractive bag.

Not only does the free bundle provide a strong incentive for customers to buy product, it allows them to sample other Clinique products they’re not already using, which encourages them to buy these products in the future.

Price of high-value add-ons

Actually, this isn’t part of the HBR article, but it works. Let’s say you don’t want to offer a low price on the product everyone wants from your firm — in our Dominos example, it’s the pizza. Why? Remember from the first post in this series, price impacts how consumers assign value to your brand — a cheap pizza can’t be very good. Or, maybe you don’t want to get into a price war with your competitors — like Pizza Hut and Papa John’s.

What’s your solution? Offer other items to make a bundle at a really low price. In my house (and probably many others) we want breadsticks with our pizza (like the pizza alone doesn’t contain enough carbs). While I might be indifferent between Dominos and it’s competitors regarding the pizza, I’ll likely order from Dominos if you offer a large discount on the breadsticks.

Coupons and discounts

Coupons and discounts increase sales, right? Well, maybe not. A recent experiment shows that consumers aren’t any more likely to choose a high-value coupon than a low-value coupon in certain cases.

And, consumers may suffer coupon burnout, meaning that they’re bombarded with so many coupons, they don’t really feel motivated by them. A recent survey by Kissmetrics shows surprising results based on coupons and discounts.

  • Only about 1/2 of consumers say a coupon will make or break their decision about which brand to purchase
  • About the same number of consumers say they spend more when offered coupons
  • Only 42% of consumers view coupons as very or extremely influential — although 86% consider coupons somewhat in making purchase decisions
  • About half of all consumers decide on the brand first, then search for a coupon — implying the consumer would buy the brand at full price if they couldn’t find a coupon. Thus, coupons result in lower ROI, without a substantial impact on sales.
  • Coupons had the greatest effect in remarketing campaigns aimed at those who abandoned their shopping cart.

Downside of coupons and discounts

Of course, reduced ROI is only one result from offering coupons and discounts. Here are some other major drawbacks to offering them: Coupons/ discounts

  •  don’t generate customer loyalty
  •  don’t increase satisfaction with the purchase
  • consumers become used to them and won’t buy unless you’re offering them an incentive
  • can create price wars resulting in lower profitability for all firms
  • may lessen the brand image

That’s why Apple computers doesn’t sanction coupons and discounts. Apple products are priced the same regardless of retailer and you almost never see them on sale. However, don’t make too much from this, as J.C. Penney attempted a similar strategy, which almost sank their ship.

Others are equally cautious about using coupons, citing similar drawbacks. That’s especially true for BOGO (buy one get one free) offers, which may be more than any consumer wants. For instance, offering buy 1 pizza get 1 free might exceed most consumers needs. Or offering a free product with purchase means you must have sufficient capacity to satisfy demand for both products.

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Steve Jobs: The Movie, The Man, The Apple

innovation at apple computer
Jobs with Ashton Kutcher

For many of you, Steve Jobs IS Apple Computer. So, last night I went to see the new movie about Steve Jobs with great interest. I’d read the book on Next Computers, which Jobs spearheaded after being ungraciously dismissed from the company he founded with Steve Wozniak. The Steves, as I call them, embody the fantasy of creating a company from nothing and seeing it become one of the most profitable and widely known brands worldwide.

If you clicked on this post hoping to see a movie review, I’m sorry to disappoint you, but you can learn more about the movie — with Ashton Kutcher playing Jobs — here. I will say, I did like the movie and recommend it. Based on what I know, it seemed pretty accurate.

I was surprised to see the audience at a theater in Metro DC because I expected to see a bunch of my geek colleagues from Mashable, TechCocktail, and DC Tech Meetups. Instead, I found the audience mostly middle-aged couples who probably remember the introduction of Apple (and other personal computers) and the iconic 1984 Super Bowl commercial that introduced the Apple Macintosh — I happen to be penning the article on the grandson of one of those first Macs.

Jobs — I’m gonna change the world

Jobs didn’t set out to create a better computer, he set out to change the world and I think most readers would agree that Apple, led by his vision, DID change the world. And, Apple Computers became synonyms with innovation — from the innovative graphic interface of the early Mac, to the intuitive iPod, to the miniaturized iPad.

Of course, not everything Apple Computers touched turned to gold — as the movie shows with the failed Lisa Computer, named for Jobs illegitimate daughter. And Jobs himself, was an incredible ass — from walking away from Lisa’s mother when she told him she was pregnant to the way he snubbed those who sweated with him in his parents garage by giving them no shares in the company when it went public.

The brilliance of Steve Jobs

Of course, his lack of people skills didn’t help the company, but his brilliance allowed the company to flourish despite his arrogance, his impatience, and the way he alienated those closest to him. His brilliance was that he intuitively understood and embraced elements of innovation management without studying them. So, what made Apple Computer the standout company it is? And, will Apple Computer survive now that Steve Jobs is dead?

Customers buy solutions, not products

Jobs knew this. Computers solved problems for buyers and that’s what they wanted. They didn’t want a computer, they wanted what a computer did for them.

Consumers don’t know they need something until you show them

It’s true. Consumers struggle with a problem and accept it because they don’t know there’s a solution somewhere. Analysts predicted air travel would remain a novelty at State Fairs until Pan Am started scheduled flights. Now, air travel is ubiquitous and the foundation for an entire industry. Steve saw a problem and fixed it.

You’re not competing with others in your industry

You’re competing with 2 guys out there in their garage willing to give up everything to change the world. At the time the Steves founded Apple Computers, IBM ruled the computer industry with an iron fist. Companies like HP, Sperry, Honeywell, Commodore, and a host of others created business based on one-upping IBM. Only Steve Jobs knew that you can’t create an iconic business by doing what your competitors do — just doing it better. Instead of jumping into the red ocean, he plunged headlong into a blue one.

Identifying your company by its products is a fools game

Apple didn’t make computers, it changed people’s lives by helping them with problems. If Apple only made computers, we might never have smartphones, or apps, or little computers that fit in your purse.

You can’t run a company with numbers

Now, don’t go off the deep end. I’m NOT saying you should ignore numbers — and as someone currently writing a book on social media analytics you can bet I’m a firm believer in numbers. But, you can’t let the numbers tell YOU what to do. Metrics help GUIDE decisions — they don’t tell you what to do. And, metrics are backward looking. They tell you where you’ve been. That’s great for tactical decisions like how much product are we selling so we know how much to make. Using metrics for strategic decisions is a little more intuitive. You can’t just extend a trend line and expect that sales will follow the trend.

To make strategic decisions, you need metrics that are forward looking — like what are consumers saying about your brand — NOT what are stockholders doing with your stock. Almost by definition, stock price is a short-term valuation of your brand and doesn’t look at the long-run. However, your strategic decisions must look 5 – 10 years out. Putting money into an obsolete technology – the Apple II — just because it was currently selling well is naive and short-sighted.

Will Apple survive without Steve Jobs?

That’s a good question. The answer lies not in the man — because Steve Jobs was a seriously flawed man — but in the organization to replace him with another visionary who embodies the principles of Steve Jobs and gives him/ her the time and resources he/she needs to continue the innovative legacy of Steve Jobs.

 

 

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Ideation and Innovation

innovationInnovation can take many forms. Whether innovation involves creating a new consumer product or service, an innovative business model or your innovation is simply a new way of doing business, innovations fuel competitive advantage for your organization that helps you stand out to consumers. Innovation also helps build a stronger economy that makes things better for everyone.

But, where do those innovations come from? Occasionally, innovation comes from a moment of pure inspiration like the little light bulb above a character’s head in a comic strip. More likely, innovation comes from processes (and organizations) that foster ideation – that fuzzy front end where ideas form.

Generating ideas

To help generate more ideas, here are some brainstorming strategies from IDEO, a leader in innovation management:

1. Sharpen the focus.

Start with a well-honed statement of the problem at hand. Edgy is better than fuzzy. The best topic statements focus outward on a specific customer need or service enhancement rather than inward on some organizational goal.

2. Write playful rules.

Ideo’s primary brainstorming rules are simple: “Defer judgment” and “One conversation at a time.” The firm believes in its rules so strongly that they’re stenciled in 8-inch letters on conference-room walls. “If I’m the facilitator and somebody starts a critique or people start talking, I can enforce the rules without making it feel personal,” Kelley says. Other rules include, “Go for quantity,” “Be visual,” and “Encourage wild ideas.”

3. Number your ideas.

“This rule seems counterintuitive — the opposite of creativity,” Kelley says. “But numbered lists create goals to motivate participants. You can say, ‘Let’s try to get to 100 ideas.’ Also, lists provide a reference point if you want to jump back and forth between ideas.”

4. Build and jump.

Most brainstorming sessions follow a power curve: They start out slowly, build to a crescendo, and then start to plateau. The best facilitators nurture the conversation in its early stages, step out-of-the-way as the ideas start to flow, and then jump in again when energy starts to peter out.

“We go for two things in a brainstorm: fluency and flexibility,” Kelley says. “Fluency is a very rapid flow of ideas, so there’s never more than a moment of silence. Flexibility is approaching the same idea from different viewpoints.”

5. Make the space remember.

Good facilitators should also write ideas down on an accessible surface. Ideo used to hold its brainstorms in rooms wallpapered with whiteboards or butcher paper. Lately, however, the group has started using easel-sized Post-it notes. “When the facilitator tries to pull together all the ideas after the session,” Kelley says, “she can stack up nice, tidy rectangular things instead of spreading butcher paper all the way down the hall.”

Courtesy of Fast Company

 Translating IDEO

The core of IDEO innovation lies in its group brainstorming sessions operated in a non-threatening way that encourages innovative ideas.  A key element implicit in IDEO is the composition of the group — which should include positive people with various backgrounds.  To avoid group-think, brainstorming sessions should vary participants.

But, what if you’re not working for a large organization?  Here are some suggestions for innovation and ideation in smaller organizations:

  1. Join or form a group of other folks interested in your industry to share ideas.  A document should outline ownership of ideas so you avoid the problem Mark Zuckerberg had with others claiming ownership of Facebook.
  2. Crowdsource innovations from customers or other interested consumers.  Some of the best ideas come from those who will use the innovation. For instance, the minivan is based on a concept derived directly from consumers’ reflections of transportation needs.
  3. Slow down and smell the roses.  OK, they don’t have to be roses, but you should set aside time from your busy day for playful reflection.  Sure, it’s important to be very strategic, but a certain playfulness (and daydreaming) promotes innovation.
  4. Take a class.  Not something related to your work (although I strongly encourage lifelong learning), but something fun.  Maybe a photography class or a cooking class.  Travel and experience different cultures.  Just keep your mind open to see things from a new perspective.
  5. Don’t be afraid to share ideas.  Despite notions that the idea is the key to innovation, it’s often the commercialization that’s the biggest hurdle, not idea generation.  Look at Xerox.  They developed the interface Steve Jobs later incorporated into Apple computers — the graphical interface — but were never able to make any money from it.
  6. By the same token, be careful who you discuss innovative ideas with.  Not because they might steal them, but because they can be negative about any idea and discourage you from pursuing something remarkable.  Accountants and attorneys (except for patent attorneys) tend to be very risk averse, so avoid discussing ideas with them until you’ve vetted the idea with business people.

My own recommendations are:

  • to keep a notebook close at hand ALL THE TIME (or a small tape recorder).  Many folks keep one next to their bed as great ideas often come in the moment just before you go to sleep or immediately upon waking.
  • Read, listen, network – the more you’re exposed to news, gossip, or other bits of information, the more you’ll be tuned into what others are thinking.  I get my best ideas from All Things Considered on NPR as I’m fighting traffic home every evening.  The key here is to get out of your comfort zone.
  • There’s no such thing as a bad idea.  People try to begin analysis during a brainstorming session.  This is deadly to the creative process.  All ideas should be considered.  The next step is the point where analysis comes in.

Hausman and Associates

Hausman and Associates publishes Hausman Marketing Letter and the monthly email newsletter of the same name.  We also provide cost-effective marketing and social media through our innovative virtual agency concept.  We welcome new clients and would happily provide a proposal to show you how we can make your marketing SIZZLE.

 

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