Competing on Price

RE: [spiers] Competing on Price

I would have to look through some very old notes, but I once took a sales
course where the instructor handed out a list of 11 things to give away
before giving a discount (i.e., 13-month warranty vs. 12, 2 operator manuals
vs. 1, additional students in the training class for free, anything with
high perceived value but low cost). I have never given a price discount
since then.


-----Original Message-----
From: wileyccc@aol.com [mailto:wileyccc@aol.com]
Sent: Friday, January 28, 2005 11:51 AM
To: spiers@yahoogroups.com
Subject: [spiers] Competing on Price


Folks,

Last summer I went with family to the Shakespeare Festival in Ashland,
Oregon and so I am now on many more mailiing lists. Today I received an
offer for a "free" seat cushion if I book a room now for this summer. It is
a good example of a bad idea.

Since most of the plays are outside, and the benches weather-resistant hard,
a seat cushion is nice to have. But if I want one, I'll buy one. When I
book a room, I want a room, not a room-and-a-seat-cushion.

Of course, the seat cushion is not free, it is in the price of the room.
Also, booking the room now encumbers the credit card, which for some can be
a problem. Hotels now have cancellation policies, and are a revenue
generator for the hotels on the forgetful. (I read somewhere that 20% of
gift certificates are not redeemed, meaning the gift certificates gain 25%
for the vendor for nothing at all. A neighbor of mine who developed the
Starbucks coffee card confirmed the numbers.)

If in fact the pillow is free, that is to say the hotel is willing to take
say some $10 less on the gross revenue of each reservation to cover the cost
of the pillow, then the hotel is competing on price? Of course. How come?
Because at the higher price, people prefer other hotels? Why? The answer,
whatever it is, cannot be good. Either way, the hotel has guaranteed that I
will not register with them.

Further, what has the hotel inflicted on itself? Who does take the hotel up
on its offer? Different clientele. People who want free things, people who
think one free pillow is good, and some towels too is even better?

Ogilvy says "key every ad" by putting a coupon for something 'free' in the
ad. In this case what is free is say a brochure that tells why you are
special, or something normally given away anyway. Like the auto dealer who
will give you a free test drive.

Problem with that advice for we start-ups is we cannot afford to advertise,
or more to the point, advertise what? We pick the product area we work in,
then our custoemrs are constantly redesigning our products... we have no
idea what we will be selling specifically next year, so we can hardly
"promote it." Happily, as mentioned in the book, we do "ad allowances"
where we gain great benefit by piggy-backing our items in ads retailers are
running anyway.

Competing on price is something we tend toward naturally, and the results
are disastrous. If sales are not what we think they should be, redesign.
Far better for the hotel to have sent me a feedback form and if I fill it
out and return it the promise of my room choice at reservation time
(something hotels can do for free but usually won't.) I'd tell them I want
my coffee creole in the morning, my wife wants soy milk in hers, and if they
comply, they'd own me as a customer.

Compete on design.

John

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