Cheap Doesn’t Have To Mean Great Value (Or Lower Margins)

Jun 20, 2016

 

A price-sentistive customer is likely more focused on price than value, and there is no reason to cut your margins on your least expensive products.

 

Low-priced products are a great way to attract price-sensitive customer but the thought isn't always appealing...

 

“Oh, great, a small sale with even lower margins. Why even bother?"

 

A low price does not have to mean lower margin. The price sensitive customer is usually focussed on price, not value. You don’t have to sacrifice margin and give them a great deal at a low price, you just have to give them a low price.

The cheapest is not always the least expensive. You could buy a $200 delivery van but would you? No - because the cost of missed deliveries, service, etc. would outweigh the savings. There is no guarantee that the least expensive is the best value.

A shop that was exceptionally busy at Valentine's Day used two people just to work the door. Partly for safety (to control the number of people in the store), partly for security (to make sure nobody took product without paying) and also for service – helping customers that were just picking up, and helping other customers find what they were looking for.

The also noticed something – a lot of people were leaving without buying anything. When asked “can we help you find something?” the answer was almost always “a single rose”.

Single rose is code for what? Cheap, right? Not always, but often. Sometimes, for teenagers, a full dozen was just too big a statement. Regardless of the reason a lot of sales were being missed.

It came up at the follow-up staff meeting the next day. The manager did not want to get into singles. They were worried that it would cannibalize sales of (more profitable) dozens, and that what little profit could be made wasn’t worth the effort.

But who said the store needed to follow the same cost-plus formula? The following year the cheapest dozen was probably $24.99. The singles, which were a slightly nicer roses, didn’t sell for one-twelfth of that, they sold for something like $8.99.

The store also also used a hurdle. Te singles weren’t put on display. They weren’t even offered until the people working the door saw walking out of the store empty-handed. At that point they would engage them and, if they said they wanted a single, they'd explain there were one or two hidden away in the basement. This hurdle assured that only those who were really serious about singles, and would not be tempted by a full dozen. would buy them.

The approach was so successful it was tweaked and offered again the next year. An even better, a nicer presentation, and a price of $12.99. The year after that was up to $29.00 for a dozen and $14.99 for a single. At that point they were so profitable the store didn’t bother hiding them, they were thrilled to sell as many as they could.

It all gets back to the idea that the low price does not have to equal lower margin. And, again, if the store had been slaves to a cost-plus formula they never would have had all that extra profit.



Category: Examples

Sponsored by FloristWare – Software For Florists

Beyond Cost Plus is sponsored by FloristWare – powerful, affordable and easy-to-use software for florists that saves time and money while increasing sales.

FloristWare – flower shop software/POS system.

Related Material

The Single Rose Disconnect – They Can Make You Money!

Single roses mean one thing to florists and something very different to customers. Understanding the customer mindset unlocks low-risk, high-profit sales.

Florist Guide To Pricing Flowers For Valentine's Day

Valentine's Day happens just once a year. A look at how modern pricing practices and a yield management approach can help florists generate maximum profits.

What A Bad Menu Can Teach A Florist About Selling Flowers

A chaotic restaurant menu that makes ordering a painful and confusing experience has a lot to teach about preparing a flyer for floral holidays.

Pricing Concepts Florists Should Master In 2017

Make better pricing a resolution for 2017. Here are five five pricing concepts florists can use to generate more sales and greater profits this year.

Gasoline, And Why You Should Always Let Customers Pay More

We get so hung up on customers focussed on price that we make an expensive mistake. Premium gasoline shows why we always need to let customers pay more.

Category List


Tag List


Tag Cloud



Archive

2018

2017

2016