Nominal versus Real
In recent time inflation in Australia and most parts of the western developed economies has been low. However it has been the case particularly here in Australia that some years ago we had high levels of inflation. Inflation has a role to play in marketing of our products and services.
Many marketers say that if you have a product that is for sale at $50, don’t sell it for $50, sell it for $75 discounted to $50. As time goes by inflation could eat into your profit and you’ll have to raise the price, but if you have it advertised as a reduced figure you can reduce the discount. So the price would still be $75, discounted now instead of $50 to say $55 or $60.
This technique is often done by a lot of the retailers and as consumers we look at the top line price, even though the reality is that top line price was never probably a real price. The issue of understanding the power of inflation in pricing is important to consider.
Photo by:- Alan Cleaver
The Decisions We Make About Price
The decisions we make about price have some important lessons for us in selling our products and services, so lets consider a survey question that was asked by two researchers in determining how people make decisions about price.
“Imagine that you were about to purchase a jacket for $125 and a calculator for $15. The calculator salesman informs you that the calculator you wish to buy is on sale for $10 at the other branch of the store located 20 minutes away. Would you make the trip to the other store?”
This question was asked in 1981 when $125 and $10 was appropriate, so accordingly we could rephrase the question to maybe say a jacket worth $300 and a calculator or some computer device worth $150. Now the calculator/computer salesman informs you that the item that you wish to buy is on sale for $120 at another store, would you make the trip?
When this question was asked the majority of people said they would. The question was slightly varied and another group of people was asked. In the different version the jacket was only $15 and the calculator $125 and now the calculator was on sale for $120 at the other store and the question was, “Was that worth the trip?” and most said no.
In both versions of the question the buyer is planning to spend $140 total and the drive saves exactly $5 so why are we more willing to drive across town to save money on a small purchase than a large one? It is this understanding of the behaviour that is driving these pricing decisions that is important for us to understand in pricing the products and services of our business.
Photo by:- Andres Rueda
Old vs New
I have been visiting my in-laws in Taree (mid north coast NSW, Australia) area. This is a town with about 25000 people. There is an interesting business case study happening in this town. To keep things in order I have keep the name of the stores out of this post suffice to say that the stores in question are electrical goods retailers.
There is one store who has been in Taree for a long time. This store we will call OLD. It is a second generation business and the current owner is in his 70′s. The store is a disorganised mess. It is poorly set out. Also there is the main front section and then you go through a back door to another section (that is if you know where to look). The floor desperately needs attention. However they have a great reputation for service and sourcing anything you may want. Because of the time in town however they have a loyal customer base.
In recent months a new (new to Taree, but has a number of stores in NSW) has opened. This store is very well set out, well stocked and with a large range of items. The store feels fresh, clean and modern. The staff seem helpful and courteous.
Both stores stock similar goods and apparently their prices are similar. Which store will win the bigger business? My in-laws previously a loyal customer of OLD recently bought from NEW. When I asked why, they could not directly answer. However when I started to ask for impressions on the store, the issue of presentation and range came to the fore. (It was not price).
So even though OLD had a loyal regular customer, they lost the business because of the competitors range and presentation of the store.
Too many businesses do not pay enough attention to presentation. It is about the little things that matter. That is the floors, lighting, cleaniness. We notice these items subconsciously.
Remember just because your customers are regular repeat now, be warned that you need to keep fresh.
Service is King (Deliver more value)
Following on from the previous post regarding what is important when the economy has a slow down I know explore the second important item for business. Service is King. In a downturn customers / clients become very choosy in who they use. This applies to the general consumer as well as the business client. Now I hear some people say they become price driven. I say they become more conscious of value. They want value for their money. So it is not about reducing prices, but rather about delivering better value. Not only do businesses have to be more conscious of the value being deliver but they have to make sure that their clients understand the value. AAn often complaint in service business is that client X just does not understand the work/effort etc that has gone into the service. It is the businesses responsiblity to firstly understand what is important to the client and to educate the client on the value being delivered. Take the effort to truly understand what is important to the client. What is it exactly that they are after? Then deliver and exceptional service. With this exceptional service and an educated client your business will thrive in any recession. How can you find out what is important to your clients? Ask them. How can you deliver better value? How can you improve your service?
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