Price-The First Component of Every Offer (386 words)
Savvy marketers know there's tremendous leverage in the offer used to promote product. During the next four editions of this column, I'll give tips and ideas about how to get more out of each of the four major components of your offer (see diagram). This month: Pricing.
•Price point. Nothing else that you test affects long-term profitability more than price. Test to find the major price thresholds for your product or service. If you can't test, study your competitors and larger, similar types of businesses.
For an inexpensive product (less than $50), consider testing in increments of $5. Most resistance usually is found in increments of $10 (e.g., $20, $30). For higher prices, test in larger increments.
•Supermarket pricing (e.g., $19.95 or $19.99) can sound less expensive than whole-dollar prices (e.g., $20). Consider using supermarket price points, but don't waste cells testing them vs. whole-dollar prices. The additional few cents leave little to gain.
•Incremental price expression. If you're using an expensive "Bill Me Later" offer, try expressing price in the smallest increments possible. Instead of "$24 a year," for example, try: "just $1.95 a month, billed annually." You also can lessen sticker shock by offering installment-billed pricing, such as "Just four installments of $5.99." Keep things simple. Skip the full-priced option if it clutters the reply device. You always can offer it later on the bill.
•Comparisons and discounts. Consider what consumers would pay elsewhere for your product or a similar one. Remind them of exactly how much they'll save on a dollar and a percentage basis.
•Other considerations. Involve your operations team early when developing new offer ideas. Before rolling out, consider the net P/L impact, including all back-end expenses, of the offer vs. your current control during a few years of business.
Once you've established an official price point, refund the difference to customers who paid the higher tested price points. It's a lot less expensive to make an existing customer happy than to find a new one.