Monday, February 29, 2016

Price Product-Service Bundles for Scalability

Retailers that sell primarily products should also sell services, such as training. Retailers that sell primarily services should also sell products, such as having spa staff recommend items customers can purchase for home use.
     To up the dollar value of the transaction, you might offer product-service bundles. Comprehensive solutions are a selling point. “We install the carpeting you purchase here.” “Your massage package includes a selection of body oils to take with you.”
     How should you price the components in the bundle? Findings from Bowling Green State University and Texas A&M University indicate that the small to midsize retail business might choose to discount the product component of the bundle, but should not discount the service portion. The researchers’ explanation is based on scalability—the diminishing unit cost to the retailer associated with additional volume. When you sell more products, you’re better able to negotiate volume discounts, so the cost to you for each item decreases. With services, though, there is a fixed cost. If a day goes by that a service staff member’s help isn’t purchased, you can’t store those hours to use another day.
     The researchers also verified that consumers will pay to reduce uncertainty. This argues for charging full price with services, since there is more uncertainty than with products. Even after completion of the sale, a customer may be relatively unsure about how well the service addressed the real problem and how reliable the result will turn out to be. If the car starts making that strange noise again, the purchaser might figure the auto repair service outcome wasn’t good. Or they could figure that the service provider delivered what was least expensive for the customer given what was known at the time and it’s now time to return to see what else should be done.
     Services customers respond differently to what can be called outcome and process factors. Outcome factors include the ease of scheduling the service, the degree to which the service addresses the problem the customer defined, and the reliability of the result. Process factors include the attentiveness and friendliness of the staff. Studies at Chinese University of Hong Kong and Fudan University found that when at least adequate service is provided, consumers pay more attention to process quality than outcome quality. Attentiveness and friendliness take staff time, a retailing reality that reminds us again services are not as scalable as products.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Deliver Friendliness If Outcomes Are Uncertain
Profit from Product-Service Synergy
Bundle Utility, Discount Hedonism
Bundle Expensive & Cheap Synergistically

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