Should You Offer Extra Services or Lower Prices? How to decide which is better for your business: adding an extra service to your product or lowering the price
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Q:I'm working on starting a clothing line that I would sellprimarily online. My question is, I know that having free shippingis appealing to the customer, so which is better: to includeshipping fees in the item price and then advertise as having freeshipping, or to sell less-expensive products without includingshipping?
A: Asa general rule, it's always better to give a service tocustomers for free rather than lower the price of your product.Here are two good reasons why: First, truth be told, whenever wemake a buying decision, greed is a bigger factor than we would liketo admit. Everyone likes to get something for free, and that'sgreat! Second, whenever we lower the price of our product, we lowerthe 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, whenproperly employed, gives you a great edge for making a sale becauseit plays on practically everybody's desire to get more thanthey are paying for.
Whenever you increase the value of whatever it is you sell (moreon this in a moment), you'll almost always end up with aneasier sale. When you increase the value and then provide avaluable service for free, you'll begin to appeal to the greedfactor. Continue to add value and free services, and you'll endup with a sale that requires less justification and less logic.Continue this process, and you'll create an enhanced emotionaldesire for your product, service or solution. However, let mecaution that your margin must be your primary consideration when itcomes to giving services for free. And here's anothercautionary note: If you go too high with the value and give toomuch for free, your prospects will start asking, "What'swrong with this picture?"
There is no better way to outsmart and outposition yourcompetition than to increase the value of your product tocustomers. Value comes in two forms:
- Tangible, or hard-dollar, value: Easy to measure andsee, the tangible value is measured in numbers or percentages. Forexample, you can increase the effectiveness and efficiency by acertain percentage or reduce the expenses by an absolute number orpercentage.
- Intangible, or soft-dollar, value: More difficult tomeasure and see, intangible value is expressed using descriptivewords 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 ofyour product. The easiest and fastest way to accomplish this is toask 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-stepexercise:
- Write down all the value you deliver to your prospects andcustomers free of charge. This list should include all the itemsthat you deliver that don't show up on your invoice or the cashregister receipt. Examples include expedited delivery, a help desk,pre-installation consulting, installation and setup, warranteeperiods, first-year service, extended service hours, optionalequipment, return policies and so on. Try to list at least fiveitems 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 payfor all the things you typically deliver for free? Make sure yourestimates are realistic.
- Include a breakdown of the aforementioned value in your next 10proposals, presentations or on the merchandise price tag. As theprospect understands the value that you deliver, you can begin toappeal to his greed by "reducing" the overall price byproviding free services. You can do this with statements such as,"On this slide, we've listed the price for each of theadded value initiatives that we provide to our customers free ofcharge. We wanted you to know that it's because of this valuethat our price and cost of ownership is actually 30 percent belowthat of our nearest competitor."
Tony Parinello is the author of the bestselling book Selling to VITO, the Very Important TopOfficer. For additional information on his speeches and hisnewest book, Secrets of VITO, call (800) 777-VITO orvisit www.sellingtovito.com.
The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.