For many customers, price plays a key role in determining the purchase of a product. Just as important, storeowners, like you, aim to garner higher profits and generate growth to increase the well-being of your business. But just how can you increase profit and serve your customers? Well, my friends, the answer is pricing.
In his book, The %1 Windfall: How Successful Companies Use Price to Profit and Grow (Harper Business), author Rafi Mohammed, Ph.D., discusses top tips to better pricing. Here are a few suggestions from Mohammed to better your business.
1. Set prices that capture value. How many times have you found yourself grumbling at the weatherman as you stumble through puddles wondering what happened to the sunny day he predicted? You suddenly find yourself sprinting to the nearest street vendor in search of an umbrella. You finally spot some umbrellas, only a few left, debate the price for a few seconds, and grab one in haste, knowing your dryness is a higher priority than the $10 you’re about to spend. This is a familiar story to everyone but it makes sense. Just when it looks like it’s about to rain, vendors raise their prices. Why? Because they know umbrellas have an increased value on days customers need a safe haven from the rain. Just like when a food recall occurs, customers look to organic stores because they place a high value on food ingredients from a trusted source.
2. Realize that a discount today doesn’t guarantee a premium tomorrow. Does your store offer a product-trial discount to lure a customer in? Does it always work? For most storeowners, it doesn’t, according to Mohammed. The main customer being served in these discounts is the price-sensitive customer, who disappears as soon as the discount does. “Many people believe that offering a discount as an incentive to trial a product will lead to future full price purchases,” Mohammed explains. This strategy also devalues the product in customers’ minds which can hinder prospective full price purchases, which we don’t want.
3. Offer product versions. Customers’ eyes widen when presented with good, better and best versions. Maybe a customer is looking to purchase enzymes for the first time, but doesn’t want the largest quantity. Providing them with a good option, $25 for 50 capsules, versus the better option, $50 for 125 capsules, may work instead. Instead of completely disregarding the product, the first-time buyer can purchase a smaller quantity for a smaller price, leaving you both happy. “These options allow customers to choose how much to pay for a product,” suggests Mohammed.
Published in WholeFoods Magazine, January 2011