Industry Research

How To Avoid Pricing And Discounting Mistakes

Posted on February 9, 2011 by LCT Staff - Also by this author - About the author

PRICING POWER: The recent recession spurred the debate in many industries about whether to cut prices, which ones, and by how much. One 2010 LCT Operator Of The Year weighs in on chauffeured services below.

In 2008, Pizza Hut saw its sales drop because of the economy. Competitors were lowering their prices and offering discounts, and Pizza Hut figured they had better offer a discount if they wanted to compete with Domino’s Pizza and Papa John's Pizza for a dwindling market.

So in 2009, Pizza Hut began to offer a large cheese pizza with three toppings for $10 (the normal price was $15). Then they sweetened the deal by offering unlimited toppings for the same $10 price.

And sales rose. That's a good thing, right?

Fast forward to 2011. The economy is easing and Pizza Hut now wants to reinstate their normal pizza price of $15. And customers resist.

Why? Because of two psychological triggers:

People had gotten used to paying only $10 for a pizza with unlimited toppings. When you increase the price back to the normal $15, people see that as a raise in price of 50%, conveniently forgetting the pre-2009 pricing.

When you lower your prices, you devalue your product or service. You're basically telling people, “It's not worth $15; it's only worth $10.”

As a business owner, what do you do when sales are sluggish and you want to offer a discount, but you don't want to imply that your products and services are worth less by lowering the price?

Enter the concept of adaptive pricing.

By knowing what your customers value, and creating pricing and discounts based on those values, you can increase customer satisfaction and sales at the same time.

Be careful of your OWN psychology: you might be a budget shopper yourself, but not all your customers are. If you constantly offer things for a discount (or for free), it's more about your own feelings about money and pricing than the needs of your customers.

For every customer who wants things as cheaply as possible, there are customers who demand extraordinary quality and are willing to pay for it. Just look at the different price/value levels of department stores (from Wal-Mart to Neiman Marcus) and you'll see that there are huge ranges of quality, service, experience, and price needs among customers.

Once you market your product or service as "cheap," you can never again have the same customer see you as quality or valuable.

— Bill Atkins, RED BANK LIMO, Red Bank, N.J.

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