Creating Greater Value Without Discounting
February 20th, 2013 // 11:44 am @ Million Dollar Methods
The next three profit reports will focus on conducting “sales” in your business. This is not about selling, but instead about the BIG RED signs you see in retail stores that read “SALE”. We are all tempted to slash prices in order to entice more buyers; but there is a right way and a wrong way to go about it.
In today’s issue, I am going to dive into the driving force behind sales and how to achieve the same result without reducing prices, cutting profit, and cheating yourself.
The fundamental factor of a sale is the (either perceived or real) increase in VALUE. Value has a lot of definitions. I believe it to be separate from PRICE, though some make the counter argument. It can also be used in different contexts, so let’s focus very narrowly.
For our purposes here, Value = Worth – Price
In other words, the difference of a product or service’s worth compared to its price. As evidence, people use the phrase “It’s a great value,” to suggest something is cheap compared to what you are getting.
Business owners discount in order to increase value (by decreasing price and keeping worth equal) and making the transaction more appealing to customers.
In the next issue, I’ll review why that’s the WRONG way to go about increasing value and the dangers that lurk in that method. I’ll address a few exceptions (when it is appropriate to discount) in the third Profit Report in this series.
As the title suggests, there is a way to increase value without discounting. Simple algebra tells us, if we can’t decrease price, then we must (at minimum) increase worth.
The most effective way to increase the worth of your proposition to a customer is to… BUNDLE.
Adding several products and services together in one offer is very common, but VERY FEW entrepreneurs think of this tactic as a “SALE”. I would recommend also increasing price, just not at the rate you increase the worth.
If increase orders for Product ‘A’, which retails for $100, combine it with Products ‘C’ and ‘D’ into one bundle. The total retail value would normally be $250, but in this bundle we’ll price it at $175. With this method, you’ve actually increase the transactions amount while still increasing the value proposition to the customer.
The customer ‘saves’ $75 but you’ve managed to keep the price integrity of Product A at $100 (not to mention the price integrity of ‘C’ and ‘D’ as well.
The company that does this better than anyone is QVC.
Watch their ‘presentations’ and you’ll recognize this strategy instantly; especially with high priced electronics.
Let’s look at QVC’s approach to selling the Apple iPad. Apple will not let retailers significantly discount the price of their latest versions. QVC, Best Buy, Apple.com all sell it for nearly the exact same price. However, QVC often competes on price (or more accurately on VALUE).
QVC sells the iPad BUNDLE for $700 to $900 and yet it’s at a discount. By including cases, headphones, chargers, and anything else you’d ever need – they are able to multiply the worth of the bundle and offer a huge savings to the customers.
Try this creative sale for yourself and see the results. Check back next week for dark-side of discounting.
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