Ditch Deep Discounts via Adaptive Pricing

Ditch deep discounts on deep dish pizza. See if you can say that sentence real fast five times in a row! Not so much as a tongue twister as a reminder of the main message in a recent Harvard Business Review Idea Watch article titled “Ditch the Discounts.” It’s a message that can help you improve your sales revenues.
     The HBR article describes the Great Pizza War. In year 2009, Domino’s Pizza, which had been charging about $9.00 for a medium two-topping pizza, offered a pair of the same for less than $12.00. Within weeks, both Papa John’s and Pizza Hut were also offering dishes at about a 35% discount. Then the discounts got even deeper.
     If you followed the path of deep discounting, your objectives of maintaining market share and helping out regular customers during the recession may have been met. But as the economy recovers, what are the best ways to guide consumers toward again paying more normal prices?
     One tactic to consider is adaptive pricing. Basically, adaptive pricing means adjusting prices to fit anticipated demand. The most sophisticated adaptive pricing systems use computer algorithms to crunch data at the level of the SKU on turnover, responses to promotions, anticipated stock levels, and product revenues in order to see where prices can be tweaked upwards without losing too many sales.
     Whether or not you have this computing power, another leg of adaptive pricing can help. It’s the recognition that different shoppers have different needs. Meeting those differing needs allows you to charge different prices for the same product or service. You guide each shopper toward accepting higher prices by starting with items for which that shopper is willing to pay a somewhat higher price. Then you extend the price increases to other items.
     Yes, that might sound like a recipe for trouble. The keys to doing it well are:

• Begin with seasonal merchandise, since the demand generally increases for a large group of shoppers.
• Present the premium price for an individual consumer in terms of a benefit. It might be a broader selection of options, expedited delivery, installation, or initial training, for instance.
• If the shopper asks for a lower-priced item, be ready to accommodate them. Consider this as your having misunderstood their needs.
• Be consistent. Otherwise, the customer might get angry, thinking that your store pricing is highly arbitrary or even discriminatory.

Click below for more:
Offer Exclusive Price Discounts Cautiously
Be Ready to Explain Price Increases
Allow Modest Expectations of Discounted Products

Pyramid Pricing Tactics on Retail Fundamentals

Like to watch or participate in a free webinar I’m conducting this Thursday, March 10? You’ll need a device with an Internet connection and the availability to log on from about 12:00 Noon to 1:00 PM U.S. Central Standard Time. You’ll want to register in advance and download the workbook. For details, please click here.
     The title of my webinar is “Profitable Pricing Tactics for Small Retailers.” The format is interactive, so you’ll have the opportunity to send in your questions using your computer or mobile device keypad. I’ll be doing the webinar with audio and video. The session is sponsored by MyEntre.Net, the online small business and entrepreneur community, in partnership with the University of Northern Iowa Small Business Development Center.
     I recommend this webinar to all retailing professionals responsible for pricing decisions in small to midsize businesses. Looking in at all or part of the webinar also could be useful for people who have not yet seen me do a presentation and are considering a contract with me to conduct a seminar.
     As with almost every “Retailer’s Edge” seminar I conduct, I’ll point out early on that profitable use of the shopper psychology tactics depends on having retailing fundamentals in place and keeping them current. You’ll then gain your retailer’s edge by pyramiding the tactics on the solid foundation.
     Among those retailing fundamentals are:

• Market research
• Strategic planning
• Legal & regulatory environment
• Financing
• Budgeting & cash flow
• Risk management, physical security, & insurance
• Human resource management
• Marketing, advertising, & publicity
• Business ethics

     MyEntre.Net, SBDCs, business improvement districts, chambers of commerce, and cooperative retailer groups are among the many resources for maintaining the base of the pyramid. The last one on the list—business ethics—has a particular importance when it comes to pricing tactics. For instance, we know that a price point of $7.99 looks to the shopper to be noticeably lower than a price point of $8.00, even though the true difference is only one penny. A price reduction from $222 to $211 strikes the average shopper as a better deal than a reduction from $199 to $188, even though the first is actually a lower percentage discount.
     Are you being an ethical retailer if you make use of these cognitive distortions when pricing? In my opinion, yes, you are. But you’ll need to decide for yourself.

Click below for more:
Round Prices to Whole Dollars for Better-Best
Have Discounted Prices End In $1.99 or $2.99

Distinguish Show-Offs from Connoisseurs

“If you want me to buy merchandise from you, show me an item or two I can show off to others.” “Or merchandise that lets me show off grandly when I give an item or two to others.”
     You’ll have shoppers who prioritize impressive appearance over refined quality. Turn those shoppers into regular customers by continually having the right merchandise prominently displayed. A Bloomberg.com posting about Stauer, the print catalog and ecommerce retailer of luxury items, describes how to do it. Owner Mike Bisceglia is quoted as saying, “We buy large stones with less clarity but at a better price. Guys like being able to afford a big, beautiful 50-carat ruby necklace.”
     Claiming you paid a good price is itself part of the showing off—even if not to the recipient of the gift. Mr. Bisceglia is also quoted as saying, “There are all different levels of pearls, but 99.9 percent of people can’t tell the difference between a string of pearls that goes for a couple hundred dollars and the thousand-dollar pearls.” Researchers at University of Alberta, University of Calgary, and University of British Columbia found that many consumers lie when asked by friends how much they paid for an item, and the lies are much more likely to be in the direction of claiming a bargain than inflating the actual price.
     Advertising and in-store displays for these show-off items should take the risk of being gaudy. Giving the customers stories to tell about the items will help, as well. The first words in the story count for a lot. In the Stauer catalog, the description for an item of jewelry begins, “This story breaks my heart every time….” and the one for a watch kicks off with, “When it comes to symbols that stir the heart, you can't beat the American flag.”
     In your merchandising decisions, do distinguish these show-offs from your shoppers who are connoisseurs. Researchers at University of Pennsylvania and Southern Methodist University note how consumers of very high-end products often prefer subtle, not obvious, signals in their purchases. Consider sunglasses. The researcher’s tally found that about 20% of sunglasses selling for under $50 included a brand name or logo easily visible to others. That increased to about 85% when the retail price was between $100 and $300, but for sunglasses selling above the $500 mark, the percentage dropped dramatically. It was only about 30%.

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

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Offer Aspirational Shoppers Subtle Signals
Analyze Gifting to Develop Opportunities
Tell Positive Stories About Your Products

Sense When Resistances Build About Paying

If your shopper conclusively decides the price of an item is too high, they’ll resist buying the item. In face-to-face selling, evaluate the decision process early enough to head off the resistance.
     Part of your evaluation will be an assessment of the shopper’s beliefs. A useful template for this is based on a set of four questions developed by Dutch behavioral economist Peter van Westendorp and used by a great many retail pricing specialists. Here’s my version of the four Van Westendorp questions:

• Does the person believe the item is inexpensive enough that they’ll think hard before deciding not to purchase it?
• Do they believe it is so expensive that they’ll think hard before deciding whether to purchase it?
• Do they believe it is so inexpensive that they’d think there might very well be something wrong with the item?
• Do they believe it is so expensive that they’ll immediately reject the idea of buying the item?

     But researchers at Universität Göttingen in Germany and Rouen Business School in France propose that an assessment restricted to beliefs is inadequate. Their findings indicate it is also important for salespeople to sense the emotional reactions of the shopper who might be conclusively deciding an item price is excessive. The researchers identified these emotions as important indicators resistance is building:

• Anger becoming contempt toward the retailer
• Guilt becoming shame at struggling with the temptation to make the purchase

     To prepare yourself and your sales staff to head off the problems, ease the frustration you yourselves are feeling about pricing. Researchers at UCLA and University of Southern California suggest two steps:

• Describe pricing as subject to change. When your staff know you’re regularly reviewing your pricing—looking for opportunities to pass on savings—they’re less likely to stay frustrated. Give your staff examples of how you’re not keeping all prices high and higher. Then coach your staff to approach customers who are in the area of competitively priced items to say, “Here’s an item that might be of interest to you. Notice what we’ve done to the pricing.”
• Give staff influence in pricing. Consider staff suggestions on what items to discount for specials and where to increase margins to balance it out. Coach staff to point out product alternatives to shoppers so everyone feels a sense of control. A sense of control helps wipe away frustration.

Click below for more:
Answer Van Westendorp Pricing Questions
Be Ready to Explain Price Increases
Tell Stories for Price Increase Acceptance
Ease Frustrations About Your Pricing
Sell Spendthrifts with Opportunity Costs

Reach Out for What Will Touch Your Shoppers

Years ago, researchers at UCLA and University of Wisconsin-Madison found that having an undecided customer hold a product makes the customer much more likely to complete the purchase. Not only that, but the customer becomes willing to pay a higher price for the product.
     Why is that? Three reasons:

• Touching the product gives the customer a sense of ownership. Have the shopper hold the puppy, and there’s no way they’ll want to let go.
• Touching gives the shopper a sense of mastery from evaluating the product. Consumers poke the melons or rub the sweater, then put the item back and do the same to another one until they’ve decided it’s time to choose and they’ve sufficient information to make a choice.
• Touching gives pleasure in itself, and people who are experiencing pleasure are more likely to make purchases. It works even when they’re touching people instead of merchandise. Researchers at Tel Aviv University assessed the results of a retail employee touching customers in settings that included a supermarket, a restaurant, and a bookstore. They reported that a brief touch on the arm of a customer led to the customer feeling more positive about the retailer.

     Although those three factors argue for you having customers touch products, there are challenges in you depending on touch as a selling tactic:

• Some products are unpleasant for the customer to touch.
• Adults vary considerably in the degree of pleasure they derive from touching.
• There are cultures in which a shopper is offended by a salesperson touching them or asking them to hold products before making a purchase.
• Customers have little interest in an item on a rack or shelf when they’re thinking about who else has touched it. They feel disgusted at the idea the product could have been contaminated by other shoppers.
• Ecommerce allows few opportunities for the shopper to actually touch the product before purchase.

     Research at University of Oxford and University of Milano indicates that a salesperson can achieve the advantages of actual touch by emphasizing touch words—like soft, warm, or fluffy—and by the salesperson running their hands over products as they demonstrate them. The researchers coined the term “affective ventriloquism” to describe processes like these, in which vision and hearing evoke sensations of feeling the product.
     Reach out for words and sights that touch your shoppers.

Click below for more:
Touch Customers
Encourage Customers to Touch the Products
Head Off Concerns About Touching Products

Miniaturize for Profitability

A Cincinnati Enquirer article this week announced that hometown heavy hitter Procter & Gamble is now selling compacted powder laundry detergents at Target stores nationwide. Concentrated powders are more popular in Europe and less-developed countries than in the U.S., where progressively more concentrated liquid detergents have been sold for some time.
     As with the liquids, the concentrated powders allow for smaller, lighter packages. Miniaturizing has many advantages for retailers. For instance, you can carry and store more products in the same space. To realize the full profitability advantages, though, frame any advantages as benefits for consumers.

• Smaller, lighter packages mean lower transportation costs when you order from suppliers and mean lower expenditures when you ship to your customers. With many products, like toys and games, smaller size generally means lower manufacturing costs. Look for ways to use these economies to drop item prices and then advertise the reductions to shoppers.
• Smaller packages mean less packaging material. Although consumer interest in going green has eased somewhat in this recession, environmental consciousness is still a selling point.
• Because of the popularity of consumer electronics, reduced size is associated in the shopper’s mind with innovative improvements. Leverage those associations by introducing at least a small product advance in the miniature. P&G says that the Tide formula removes stains better than the older version, and the new Gain features “perfume microcapsules” to boost the aroma of freshness.

     When introducing miniature versions of products, make it easy for the consumer to adjust usage habits in ways that will allow them to realize the full advantages. The scoop that P&G places inside each concentrated powder detergent box has revised marks for amounts to be used. Unless such changes are abundantly clear, shoppers will readily say you’re charging them the same for less.
     Miniaturizing works not just with products, but also with services. If you can deliver the service more quickly, that can be more valuable to today’s multitasking consumer.
     Here, though, pointing out the benefits can be challenging. Consumer behavior research at University of Singapore and University of Toronto found that when service duration is shorter than the customer expected, the customer thinks the service is inferior. But researchers at University of Michigan found that quickness can imply higher quality to the consumer when the retailer points out how each person and each process was so refined that no time was wasted.

Click below for more:
Explain How Quick Service is Worth More
Explain Delivery Time as Quality/Talent
Look to Toys & Games for Retailing Trends