Should You Offer Extra Services or Lower Prices?
Q: I'm working on starting a clothing line that I would sell primarily online. My question is, I know that having free shipping is appealing to the customer, so which is better: to include shipping fees in the item price and then advertise as having free shipping, or to sell less-expensive products without including shipping?
A: As a general rule, it's always better to give a service to customers for free rather than lower the price of your product. Here are two good reasons why: First, truth be told, whenever we make a buying decision, greed is a bigger factor than we would like to admit. Everyone likes to get something for free, and that's great! Second, whenever we lower the price of our product, we lower the perceived value of that product. That's not so great.
The word "greed" definitely has a negative feel to it. But it should be recognized as an effective element that, when properly employed, gives you a great edge for making a sale because it plays on practically everybody's desire to get more than they are paying for.
Whenever you increase the value of whatever it is you sell (more on this in a moment), you'll almost always end up with an easier sale. When you increase the value and then provide a valuable service for free, you'll begin to appeal to the greed factor. Continue to add value and free services, and you'll end up with a sale that requires less justification and less logic. Continue this process, and you'll create an enhanced emotional desire for your product, service or solution. However, let me caution that your margin must be your primary consideration when it comes to giving services for free. And here's another cautionary note: If you go too high with the value and give too much for free, your prospects will start asking, "What's wrong with this picture?"
There is no better way to outsmart and outposition your competition than to increase the value of your product to customers. Value comes in two forms:
- Tangible, or hard-dollar, value: Easy to measure and see, the tangible value is measured in numbers or percentages. For example, you can increase the effectiveness and efficiency by a certain percentage or reduce the expenses by an absolute number or percentage.
- Intangible, or soft-dollar, value: More difficult to measure and see, intangible value is expressed using descriptive words and phrases. Some examples include less risk or worry, enhanced image or reputation, or a greater peace of mind.
Whenever you can, increase the hard- or soft-dollar value of your product. The easiest and fastest way to accomplish this is to ask your customers how you can improve your offering. After all, that's what customer surveys are for.
Now take a moment and complete the following three-step exercise:
- Write down all the value you deliver to your prospects and customers free of charge. This list should include all the items that you deliver that don't show up on your invoice or the cash register receipt. Examples include expedited delivery, a help desk, pre-installation consulting, installation and setup, warrantee periods, first-year service, extended service hours, optional equipment, return policies and so on. Try to list at least five items and write your value down on a separate sheet of paper.
- Attach a dollar amount to each of these items of added value. In other words, what would it cost your prospect if he had to pay for all the things you typically deliver for free? Make sure your estimates are realistic.
- Include a breakdown of the aforementioned value in your next 10 proposals, presentations or on the merchandise price tag. As the prospect understands the value that you deliver, you can begin to appeal to his greed by "reducing" the overall price by providing free services. You can do this with statements such as, "On this slide, we've listed the price for each of the added value initiatives that we provide to our customers free of charge. We wanted you to know that it's because of this value that our price and cost of ownership is actually 30 percent below that of our nearest competitor."
Tony Parinello is the author of the bestselling book Selling to VITO, the Very Important Top Officer. For additional information on his speeches and his newest book, Secrets of VITO, call (800) 777-VITO or visit www.sellingtovito.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.