The marketing mix - how pricing directly affects your revenue

Published June 4th, 2008 in Marketing and Selling | No Comments »

Everyone knows about, or has at least heard of the “Four P’s” of the marketing mix. Product, promotion, place and price. I find the area of pricing to be particularly interesting as small changes in pricing can lead to massive changes in the way the customer reacts, and ultimately, your bottom line.

People understand the concept of charging money for goods and services, but few people realize how their pricing strategies might affect their revenue and profit. In fact, price is the only element of the marketing mix that directly generates revenues while the rest would be classed as elements that require funding before generating income.

Let’s face it - the typical company is never going to make millions giving things away for free, so you have to charge your customer a price that covers your costs with a little margin for profit. But there’s a whole lot more to it than setting a retail price and waiting for the customer to look, evaluate and buy.

In the marketing mix the concept of price can take into account much more: quoting customers, volume and quantity discounts, pricing for perishable goods, bundling, “two for one” style offers, and whatever else a vendor can think of.

Choosing a base price at which to sell a product or service isn’t as easy as selecting a price from thin air. First, a vendor has to do market research to discover how much the offering is valued at, and what the customers are prepared to pay for the goods. If that price comes back below the cost of goods, then the vendor should postpone any further thoughts of selling the product/service and seriously consider abandoning the venture or value-adding the offer to make it more attractive to the customer. This should, of course, increase the price the theoretical customer might theoretically pay.

There are literally dozens of factors at this point to consider, including the competition’s pricing, price elasticity (demand versus supply) and what the vendor’s expectations are for the product, brand and revenue.

When you’re pricing something remember not to settle for a straight plain-vanilla retail price. There are so many realistic alternatives that can excite a customer and convince them to buy your product or service over the competition. And even better, they may be happy and buy more than one of your product if your pricing elements are just right.

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Triplicate Of Choice - presenting three pricing options to a customer

Published June 3rd, 2008 in Marketing and Selling | No Comments »

I’ve been a salesperson pretty much all of my life. At school I would sell confectionery and drinks to the other kids, earning enough money to supplement my pocket money. Through my college years I worked as a salesperson at my local electrical goods retailer. After graduation my first full-time job was as a software sales representative, and I haven’t really stopped selling since.

Over the years I have used and refined a concept called “The Triplicate of Choice” which is a great way to present pricing options to customers so that the cost of the product doesn’t become an objection which might jeopardize the sale. It’s not a gimmick, or a trick but it does lead the customer to make a decision to pick the product that suits them the best. The problem is, I have no way of replicating this model into the online world because it requires some interaction, and I can’t figure out how to transfer that successfully into the online realm. I’ll detail the model below, and keep working on a way to make it applicable for selling things on the internet.

A word of warning: there’s a lot of generalization that occurs here so bear with me. It’s not an exact science, but it works most of the time. For this example we’ll pretend we’re selling watches, and we have three models:

CP-100 which costs $500, CP-200 at $800 and the deluxe CP-350 which is $1000.

The first thing you have to do is figure out what the customer currently has. I’m just going to summarize the questions here, you can figure out how you want to word them in real life

1) “So Mary, what kind of watch do you currently have?” (determine what she has)

2) “And what do you like most about the Rolex that you have?” (if she likes something, remind her that the model you want to sell her has those points too, if applicable)

3) “Anything you don’t like about the Rolex?” (obviously if your model circumvents or has fixed these issues, mention them)

3a) I almost forgot this bit: “And Mary, the watch is for you, so are you going to be the one making the final decision on the model?” (got to make sure you’re not presenting to the wrong person)

And this is where is gets tricky - you have to know your models and pricing well.

4) Have three models to present which will suit Mary. Start with the model with the least features, then present the medium product and finally the deluxe model.

It doesn’t matter which model your potential customer picks here, it is, afterall, their decision. Let’s just say Mary has picked the CP-100. Invariably Mary will ask how much the CP-100 costs. At this point you have to be sharp and present the options correctly. I say something like “ah, well before I can tell you that Mary, I have to ask a few questions.” Typically the customer will play along, because if you’ve involved them well enough they won’t mind the interaction.

5) Now we know the CP-100 is $500 (as above). Here’s how I present the prices:

* “Mary we get a whole lot of different people inquire about our watches. Many people come in and tell me they’re prepared to spend about $600 on a nice new watch.” (note, $600 is 20% more than my target price)

* “Of course there are some fortunate people who come into the store with a little bit more money and are prepared to spend around the $750 mark on a watch.” (the second price should be 50% more than the target price)

* “And then we get people who are on a limited budget and want a rock-bottom price with no extras and they’re prepared to pay about $500 for a watch.” (this is where you quote your target price)

GENERALLY the customer will choose the middle option - 20% over the target price.

The next bit is quite rewarding because the customer is always happy:

6) “Mary, you mentioned that the model you liked best was the CP-100 and that if you decided to buy a watch you would probably fit into the range of spending approximately $600 on a watch, didn’t you? Well, I’m happy to say that the CP-100 is, in fact, only $500.”

So there you go. That’s the triplicate of choice in qualifying a customer for a price. Closing the sale is different story, but you can see how the steps (if practiced) can lead the customer to make their own decision. And when the customer chooses their own product they are more likely to become emotionally attached and be happy with the sale.

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