Strategy: The Price Is Right … or Is It?
Other effective ways to reduce the perceived price include installment billing and, in the case of subscription marketing, per-issue or per-month pricing.
A classic example of reducing the perceived price in consumer marketing is selling automobiles based on monthly payment. I've been guiding my 25-year-old daughter through her first vehicle purchase. The bank can't wait to sign her up for a 60-month loan on a used car. Meanwhile, dear old Dad is trying to tell her that five years from now, the car will have lost at least half of its value and she'll still be paying based on today's price. Yet the lender and the auto dealer have nearly convinced her that the vehicle is a good deal because she can afford the monthly payment.
Direct marketers can use the same principle to create a perceived price point based on installment payments. Here are a few actual price tests to stimulate your thinking along with profit-building results:
- Twelve issues of a gardening magazine at 99 cents a copy versus one year for $11.97. The per-issue pricing pulled 10 percent more orders while giving up a mere 9 cents per order ($11.88 versus $11.97). A dollar per copy has been another successful price point for many publishers, especially in tandem with a two-year term.
- Fifteen copies of a consumer newsletter for $1.97 each, versus 12 regular monthly issues plus three free special editions for three installments of $8. The per-issue price results in 23 percent more revenue per order ($29.55 vs. $24). Net response fell 10 percent, an acceptable outcome given the price breakthrough.
- A self-help book for three installments of $8.99 ($26.95 total) versus three installments of $8.32 ($24.95 total). The $8.32 price point arose from an earlier test showing that installment billing significantly outpulled the mention of full price. The book was initially priced at $24.95 in order to stay below the $25 barrier. But it turned out that the new price barrier was at the $9-per-installment level. The test result was virtually no change in response at the higher price point, but $2 more revenue per sale. The extra revenue was pure profit.
- $127 per year for a B-to-B newsletter, versus $97. Conventional wisdom suggests that breaking through an obvious price barrier such as $100 should have a profoundly negative impact on response. In this case, the higher price actually boosted response by 11 percent. Apparently, the higher price raised prospects' perceived value of the product very significantly. Compounded with the 31 percent higher price, this lift delivered 45 percent more revenue, a blockbuster of a result.
Price Tests You Might Have Overlooked
One of the most successful direct mail formats of the past decade is largely driven by price. The professional discount voucher is the control for many mailers, including The Wall Street Journal and Reader's Digest, a pair of publications that one would think could market more successfully with a long-copy approach. Yet for these and many other publishers, a format that relies on a highly discounted price is the hands-down winner.