The Art of Raising Prices: Lessons from Amazon Prime

Harvard Business Review:

 

Raising PricesThink about what Amazon has done to convince us how much we will save with Prime. And how even a large price increase seems like a real value.

Read more on pricing from Channel Instincts at “Are You Pricing for Volume or Profit?” and “What Does ‘Your Price Is Too High’ Really Mean?”

Good Selling!

Originally posted on HBR Blog Network - Harvard Business Review:

With the economy on the upswing, most companies are contemplating increasing prices. Managers are rightfully anxious about making this move – it’s a sensitive issue for customers. While no one enjoys paying more, the right series of messaging tactics can tame potential backlash.

Amazon recently hiked the price of its Prime service, which includes two-day shipping, Kindle book loans, and streaming video. Raising Prime’s price is especially risky as it’s a key marketing conduit that draws in and engenders loyalty from customers. Analysts estimate Prime members spend over double compared to the average Amazon patron. With a P/E ratio exceeding 550, Wall Street is expecting Amazon to continue dazzling investors with eye-popping annual revenue increases. As a result, the Seattle-based retailer needs to keep Prime – its key engine for growth – in tune.

Amazon did a solid job of raising the price of Prime from $79 to $99. Given…

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Are You Your Customer’s Biggest Fan?

Are You Your Customers Biggest Fan?Ever buy something that costs less than the thing you really wanted because it looked all right and somebody said it would work just as well?  Then, when it didn’t live up to your expectations, did you tell yourself you’d gotten what you paid for?  We’ve all done it.

Stop selling on product and price!

Yet, people continue to buy based on appearances and price…and to make them comfortable about products that can’t be tried before they’re bought, both makers and sellers issue liberal promises.  Those promises are on the web, in advertising and sales literature.  They are repeated by sales people, and reinforced by warranties.

But, customers sold on unfulfilled promises can be lost forever once they are unsold.  The web and social media give these unhappy customers a megaphone to declare their disappointment, frustration and, occasionally, raw bitterness.

There is a way, however, to beat the price game, still make the sale, and keep the customer satisfied.  The answer is to add value to your product lines.  And, the way to do that is to stand out from the competition.

The real key to unlocking growth with your customers is to align your business with their needs

Key to unlocking growth with your customers is to align your business with their needsTruth is, having the right product at the right price and an acceptable level of service are the cost of entry today.  You have to stop selling product features and specifications.  You need to start selling

  • Service
  • Relationships
  • Customer success

Your customers, like all of us, are bombarded with thousands of messages everyday…family stuff, business, the news of the day, social media, advertising, email, sales promotion, publicity.  The trick is to avoid having your message lost in the daily clutter.  So your customers know who you are, what you have to offer, and that you care when they’re ready to buy.

Looking beyond products

Looking beyond productsIt’s the “care” part that makes you different.  You have to guarantee their satisfaction.  Your sales people must be knowledgeable.  You have to offer the best products available in every price range…best for the money, best for the application, best for builder, best for remodeler and homeowner satisfaction.

You’re an expert at what you do.  That means you need to look up from the day-to-day business long enough to identify market problems and turn them in to advantages.  Do this customer by customer with the goal of being the supplier who is most committed to their success.  Leverage your strengths as the marketplace expert and resource.

Why adding value is good for your business

Good for your businessThe end result?  You will stand out in your customer’s minds.  You will make your competition irrelevant because all they are selling is product.  And if they are using price as their primary sales tool, this strategy makes price less important.

That’s why adding value is good for your business.  Because aligning to customer needs benefits you with…

  • Increased customer loyalty
  • Less price sensitivity
  • Higher sales

And, that helps you stand out in a crowded marketplace, beat the market’s economic swings and pitfalls, and increase sales profitability.

For other posts on value from Channel Instincts, see Are You Ready For A Dog Eat Dog World? and  Are You Delivering Real Value to Your Customers?

Image via Shutterstock

Are You Ready For A Dog Eat Dog World?

Let's talk about competitionWith that in mind, let’s talk about competition. To paraphrase Sara Lee, “Nobody doesn’t have competition.” We do, you do, everybody does.  Do I hear you asking what’s the point?

Simple.  Since having competition is a given, it’s what you do with it that counts.

What do you do with it?  Ignore it?  Hope it will go away?  Bad mouth it?  Or do you learn from it?  Do you make improvements to keep ahead of it?

For many of us, a big part of our current competitive situation boils down to one word.  Price.  There are always small companies cherry-picking chunks of the market with lower prices on selected product knock-offs.  Do they offer anything else?  Uh-uh.  They can’t afford to.  Have they embraced the very important concept of customer support that is key to a successful marketing effort?

The low price competitor is historically short on value

The low price competitor is historically short on value

As we’ve watched price-based competition come and go over the years, we’ve learned that your customers demand more than low price.  They want comprehensive programs that include new product development, technological innovations and easily understood differences.  They also want merchandising support that really helps them sell.  And, of course, they want service…before, during and after the sale.  Moreover, they want it from pros who know their products, their markets and their needs.

It’s impossible to separate price and value

Your customers also know that it’s impossible to offer a comprehensive package loaded with value and always offer the lowest price in the market.  But, they’re not searching for a shortcut to a quick buck.  Like you, they’re in this for the long haul.

Dog Eat Dog World of CompetitionIf this support list describes what you provide to your customers, you should be able to weather just about any competitive storm.  Your customers should recognize that in this industry, it’s impossible to separate price and value.  A successful distributor-based business needs both.

The low price competitor is historically short on value.  And, in this dog eat dog world, value is the thing on which we and you keep our incisors sharp.

For more on value, see the Channel Instincts posts Are You Delivering Real Value to Your Customers? and Are You Your Customer’s Biggest Fan?

Are You Delivering Real Value to Your Customers?

price_is_what_you_pay_value_is_what_you_getMany business experts have hailed the arrival of a changing marketplace, one with a great emphasis on value and even a new value-conscious consumer.  But more than a little debate surrounds the questions of what really constitutes value and whether the so-called value-driven consumer actually exists.

Over the years, some have argued that today’s consumer is no more value driven than Cro-Magnon man was or space colonists are likely to be.  In other words, the erosion of brand equity is nothing more or less than bad marketing.

Does value equal price?

Cost-vs-ValueMuch of today’s ineffective marketing stems from confusion between the words “value” and “price.”  Every consumer purchase can be seen as an equation in which value equals what you get divided by what you pay – and too many people mistakenly use “value” to describe the denominator of the equation rather than the result.  This leads to tactics like price reductions and promotional discounts, “value” strategies that can actually erode a brand’s value.

On the other hand, by building up the “what you get” part of the equation rather than reducing the “what you pay” portion, smart marketers know they can get a stronger response over time.

How does prestige factor in?

Value Driven ConsumersAdmittedly it has become fashionable to consumers to demonstrate smart buying.  Yet prestige remains an important part of the value equation.  In marketing terms, it’s senseless to cut price and quality in order to maintain margins.  Smart marketers maintain prestige imagery as part of their brand equity, while shifting their marketing emphasis to communicate the quality of their brand in more tangible terms.

Economists who think value equals price miss the point.  In many cases, price is a secondary, sometimes limiting factor rather than the essence of value. For example, while builders are notoriously price conscious, this does not keep a high-priced entry-door supplier from being the market leaders.  A builder may actually consider the line low-priced because its decorative glass enhances the look of a home so much that its selling price is boosted far beyond the extra cost of the door.

Who defines quality?

Value-as-shown-in-dictionaryThen there is the manufacturer’s mistake: defining value as quality. Wrong again.  In a nutshell, value to a consumer is the satisfaction of a desire, not quality as defined by the manufacturer.  What manufacturers consider a quality product may be irrelevant to the consumer, nothing but waste and useless expense.  Manufacturers may see this as irrational, but business common sense says there are no irrational consumers; they all behave rationally in terms of their own priorities.

There is nothing esoteric about this concept.  Value merely means different things to different people at different times.

For more posts on value from Channel Instincts, see Are You Ready For A Dog Eat Dog World? and Are You Your Customer’s Biggest Fan?

Photo credit: StuartPilbrow via Flickr