Today, 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.
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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