Thursday, January 26, 2017

Reference Prices for Referrals

Customer referrals are an excellent source for building your business. There will be more people to purchase from you. And a referral reduces price sensitivity. Researchers at Goethe University Frankfurt and University of Pennsylvania found that the revenue value from a referred customer averages about 16% higher than that from a non-referred customer.
     Yet because of the referral process, these new prospects may come into your store, shop, or office with distorted impressions about what you charge. This is especially likely in services retailing, where price tags are usually less prominently displayed than with merchandise retailing.
     The distortions can be in different directions:
  • In a Yale University study, a group of MBA students were asked what they’d be willing to pay for a set of DVDs of a popular television series. They were then asked to estimate what others would be willing to pay. The difference averaged 48%. Similar findings were obtained for chocolate truffles, teddy bears, artwork, and even a trip to the moon. People usually think others will pay higher prices for items than they themselves would pay. If this attitude is reflected in the referral process, the referred shopper may come to you with hesitation, expecting to pay a premium price. 
  • Friends brag about savings they’ve obtained, even if this means lying. Researchers at University of Alberta, University of Calgary, and University of British Columbia concluded that when people believe they might have been able to wrangle a better deal on a product or service, this belief leads to them feeling a threat to their self-esteem and their self-image. They fear not only that others will see them as being suckers, but also that they’ll see themselves that way. The researchers found that people are especially likely to lie to coworkers about the good deals they got. Since a natural follow-up question from a coworker is, “Where did you get such a good price?,” you—the retailer—should expect some people to come into your store looking for discounts you’re not offering. They were lied to. 
     To handle this issue, reference your regular prices on documents salespeople can present to prospects and have each employee on your sales floor and at the checkout area carry copies of your store’s current ads and discount announcements. These, along with price tags, take it away from being customer versus store employee. There’s the objective source both can look at.

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

Click below for more: 
Cultivate Referred Customers
Seem Exploited, But Never the Exploiter
Expect Shoppers to Expect Nonexistent Discounts

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