Tuesday, October 16, 2012

Do the math

Many business owners and sales people assume their customers are not only math literate, but that they take time to do the math.  Most people, regardless of ability, just take a short cut.  

Consider these two offers:
  • 50% off 
  • 50% more free
Both offer 50% of the original amount for FREE!  Using this short cut, the offers are identical.

Lets look at them from the business's side.  The second offer is actually only a 33% discount.  Not only does this increase cash flow, but it also increases the size of each sale, and may even let the business take advantage of bulk discounts from their vendors.  In almost every case it is easier for a company to make the second offer.  

A closer look from the client side reveals the first offer is a discounted price.  Price reductions, especially when they are as large as 50%, "cheapen" the product and make us wonder why it is no longer worth full price.  (Note: it can be very difficult to come back to full price.)  The second offer is viewed as a bonus, not a price reduction.  Getting a bonus from a company or brand you already like only strengthens your perception of them.  Customers may look for a bonus next time, but its easier to understand paying full price.  

Next time you are thinking about offering a steep discount, consider offering more for free.