By MARK RIFFEY for the Flathead Beacon
Do you depend on having the best price to win business? If so, are you sure that’s really how you want people to choose your company?
I ask that because if you cut your price 10%, that 10% comes out of your profit margin. Perhaps obvious, but not always something folks pay attention to – particularly when price is used as an end-all, be-all to close a sale.
You can tell that’s going on when you intentionally keep silent when someone names the price of a product or service. Stay silent long enough after they react to your “What’s the price?” question and the “we’ll win on price at all costs” salesperson (particularly the novice) will often get nervous and say something like “Of course, we can go lower…”
Use low price as a component
As Amazon Web Services SVP Andy Jassy is fond of saying, “I’ve never met a customer who asked if they could pay more.”
So how do you balance between being too expensive and being the one with the paper-thin margins?
Don’t get me wrong. Using price as a component of the things you use attract customers is fine. Where you run into trouble is when it’s used as the primary decision point. In those cases, you’re more than likely going to get burned and less likely to attract long-term customers.
One common example is using products and services as loss leaders. It’s OK to leverage price in this way as long as you know your numbers very, very well *and* you know that once you get that customer, there are plenty of opportunities to provide more value to them – value that they’ll be happy to pay for.
Fail to do this and you’re headed for trouble. This isn’t just about milk at the back of the store. You see it frequently with internet-based services. How do they offer “free” to so many people, yet still make a profit?
They know how much it costs to offer that free service.
They know how many of those freebie users will convert to paying customers because they want services, features and benefits not offered to freebie clients.
They know their margin on the paying customers is enough to fund the freebies, plus profit margin, so that more paying customers raise their hand and say “Yes, I need that.”
Bottom line, they know their numbers and they never stop recalculating them, just in case something changes.
Low price isn’t owned by the internet crowd
You can use free or cheap as a lead generation carrot as long as you too know your numbers, and make sure that you’re using that offer with the right prospect.
That’s where most businesses get started down the wrong road – they make the offer to the wrong group of people, ie: people who would never have been their customer in the first place.
If you make your offer to the right people, that’s a different story altogether – and that’s the magic formula no matter what your pricing is like.
The timeshare business has done this for years by giving away a free night or two, dinner, etc – all in order to get you to see and enjoy what their facility offers. They know historically what percentage of people will buy if they take the time and make the effort to attract the right prospects to their offers.
Using low price requires well-crafted offers
Timeshares don’t make their numbers by giving away all those free nights, golf rounds, lift tickets and meals to anyone and everyone. They’re careful to pre-qualify prospects using financial, behavioral, demographic and psychographic measures to make sure they closely match historical buyers.
When you attract people with a low price offer, the goal isn’t simply to make it free or available for a low price, but to provide enough of a taste with as little risk as possible to the prospect so that the right person can make a decision to become your newest client.
If you can do this without killing your margins during the period between the time they taste and the time they get serious about buying the real value you can deliver, then low price can work.
Do you know your numbers that well?
Want to learn more about Mark or ask him to write about a strategic, operations or marketing problem? See Mark’s site, contact him on Twitter, or email him at mriffey@flatheadbeacon.com.
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Want to learn more about Mark or ask him to write about a strategic, operations or marketing problem? See Mark’s site, contact him on Twitter, or email him atmriffey@flatheadbeacon.com. Check out the Flathead Beacon archive of all of Mark’s blogs.