Out of the Crisis.Org

[Bud]

Two Pricing Tactics From Big Business


My last post described two pricing strategies common among
big business. Compared to strategies, tactics are plans
that can be enacted or changed quickly. Two pricing tactics
that big business employs to increase their sales are
called Bundling and Step Pricing.

Insurance carriers and telephone providers make good
examples of bundle pricing. For instance, many insurance
policies I look at come with extras I don't want, but can't
be deleted from the policy. Anything else I do want to add
only comes as part of another package, or bundle, which
forces me to buy the whole extra package. That is a
negative use of bundling.

On the other hand, our phone company always wants to sell
me a package deal on telephone service, long distance and
DSL; cheaper than I could buy them separately. That is a
more positive example of bundling.

But it is all bundling, basic pricing techniques used
throughout industry. Look at new cars. They come with
numerous options, sometimes individually, but more often as
part of an 'option group' - excuse me, as part of a bundle.

Now consumers are used to this, having to choose among
deals, and picking from different offers. Having choices
makes many people feel like they are in charge. In fact, if
consumers no longer had choices, many would be angry,
feeling like they had lost some freedom. We are consumers,
too, even more than our customers are. We not only shop for
consumer goods, we buy business products as well. It would
seem, then, that more shops would offer bundle packages,
(worthwhile ones), and package deals.

Now Step pricing. Convenience store chains use step
pricing, and do it so blatantly that it looks ridicules.
People expect prices like this: A 22 ounce fountain drink
sells for 60 cents, 44 ounces sells for 70 cents, and 64
ounces for 80 cents. Only ten cents more for each jump. The
deal is too good to pass up, even if the shopper is not
that thirsty. If they are still undecided about how much to
overspend, an even better package is offered: super size
the drink and get a candy bar for 1/2 price. The store's
incremental costs are always less than their incremental
jumps in revenues, so they make greater (overall) profits
by doing this.

Simply, they will offer as many steps as it takes to
extract all the money a person is willing to spend.

Now, if shop owners did that, they'd say we had no self
respect at all. But what reasonable steps in pricing could
a shop offer? Think not in terms of average costs, but in
terms of incremental costs.

For instance, once the wheels are off a car for any reason,
how much extra time does it take to balance them? Not much,
especially if you have already road tested the car for
other reasons.

If the incremental cost of doing an additional service is
lower, can we lower the price of the extra service, and
still make decent money? Or would it be better to lose the
additional sale, let the costumer drive away, and not earn
any additional income.

The answer could be either yes or no, depending on your
workload.

If your techs are less than 100% busy, the best answer is
________.

If your techs are booked to capacity, the better answer is
_______.

[Louis Altazan]

Hi Bud,

Thanks for the great information. I would question one thing, in respect to what I see as my role as a trusted service provider, as opposed to a merchant, selling consumer products.

[MattFMN]

That has long been an argument of mine. Selling vs. educating. Upselling vs. honest inspections. Many times the mantra of a shop is upsell, upsell, upsell. Bring it in for the loss leader and find maintenance items to be sold (flushes, etc). Also, instead of truly inspecting the vehicle, the mileage is noted and any services that apply are sold. Are they truly required/needed? I do feel this is a perception issue. Does the shop/tech/advisor view the client as a consumer or as a person? Do we respect the person(s) and their money or do we try to keep selling, selling, selling to meet quotas/sales goals? A simple alteration of perception, in my opinion, makes for a huge difference. Later, Matt.

[Eric J.]

[Bud]

Hello again,

This post merely illustrates that we can at times sell things at lower prices, if our cost of delivering them is lower, and still make money at it. The examples show that it is an accepted way of doing business.

I really was not addressing the greater issue of value, as is being raised here. Obviously many firms will sell anything to anybody, whether they need it or not. And they do profit, long term too unfortunately, as long as they have an endless supply of new customers.

In my opinion, the single auto repair shop does not have an endless supply of new customers to abuse.

[Louis Altazan]