Between the continued rise in inflation and the potential risks of recession, I wouldn’t blame you if you were concerned about the economy, and more specifically, where your business is heading at the moment. One way people react in uncertain times is to slash prices as a way to drive sales. We see it in travel, in retail, in B2B… pretty much everywhere. Except, as you’ve heard me mention more than once, slashing prices to drive volume is almost always the wrong answer. Instead of cutting prices, I’ve long recommended you practice "the lost art of value adds" in your marketing. Why? Well that’s what this episode of Thinks Out Loud is all about.
In this episode, "The Lost Art of Value Adds in Marketing," I look at why cutting prices is the same as running a race you can’t win, I talk about at the connection between prices and customer value, and I discuss how you can use value adds to set your company up for success when business is tough — and, at it happens, when business is going great too.
Want to learn more? Here are the show notes for you:
Revisiting "The Lost Art of Value Adds in Marketing" — Relevant Links and Show Notes
- The Race You Can’t Win
- The Biggest Risk to Your Business? Becoming a "Hidden Intermediary" (Thinks Out Loud 267)
- Price elasticity of demand – Wikipedia
- Veblen good – Wikipedia
- Worried About a Recession Next Year? Here’s How Marketers Can Cope (Thinks Out Loud Episode 264)
- Coronavirus COVID-19 and the Travel Industry: How Hotel and Travel Companies Can Manage Business Disruption
- Marketing in Uncertain Times (Thinks Out Loud Episode 352)
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You might also want to check out these slides I had the pleasure of presenting recently about the key trends shaping marketing in the next year. Here are the slides for your reference:
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Running time: 23m 40s
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Transcript: Revisiting the Lost Art of Value Adds in Marketing
Revisiting "The Lost Art of Value Adds in Marketing" Introduction
Hi, I’m Tim Peter. And I wanted to speak to you for a moment before you listen to this week’s show. You may have noticed that from time to time this year we started releasing rebroadcasts of prior episodes. There are a number of reasons. Producing a weekly podcast that I feel is worth your time is a fair bit of work. You have to outline a script, produce the episode, edit the recording, review the transcript, publish the episode, and then promote it. It can be challenging to get it right.
- Sometimes my travel schedule gets a bit crazy.
- Sometimes client deliverables take longer than expected or last minute critical issues on a client’s behalf take precedence.
- Sometimes I need a break.
- Sometimes, I just don’t have anything to add to the conversation.
When this happens, we release a rebroadcast instead of trying to just get something out the door. But, always, the team and I try to find an episode that highlights an important topic and succeeded in doing that in a fun, interesting, and enlightening way.
This week, I think, is very much an example of what I’ve just described. Last week’s show was all about about how to market in uncertain times. And during that discussion I referenced a prior episode, "The Lost Art of Value Adds in Marketing."
Given the ongoing uncertainty that many businesses face, the continuing rise of inflation, the increasing likelihood of inflation, I didn’t think I could share anything more valuable in this immediate moment than in that original episode. I will have more to add to the discussion over time. But, right now, I think this covers what’s most important for you to know.
So, I hope you enjoy this rebroadcast of "The Lost Art of Value Adds in Marketing" and find it useful in your business. Let me know what you think. Let me know what you’d like to hear more of. Let me know how to make the dialogue better. I’d love to hear from you.
Thanks for listening. And now on with the show.
Well, hello again, everyone. And welcome back to Thinks Out Loud, your source for all the digital marketing expertise your business needs. My name is Tim Peter. This is episode 277 of the Big Show. And thank you so much for tuning in today, I really appreciate it.
I want to start by following up on last week’s episode and actually an article I wrote earlier this week about coronavirus. And I want to be really clear, this is not intended to be a medical update. I don’t know what’s going to happen with coronavirus, with COVID 19. I don’t know what’s going to happen to the economy.
We’re Facing Uncertain Economic Times
But it does seem increasingly likely that we’re going to see some business impacts from this virus in lots and lots and lots of industries. And I’m seeing a large number of marketers and a fairly large number of companies start to do sales and discounts and all these other kinds of things to try to keep customers engaged, to try to keep customers coming back for more.
And I have to say, it always drives me nuts when I see people do this. It’s always a mistake. Always.
I know I’m going to get some heat for this one. People are going to have some problems with this. But it’s not hard to lower prices. It’s hard on your business, but it’s not hard from a creativity standpoint. It’s not hard from a sales perspective. It is always the simplest thing to do. And it is almost always the very worst thing you can do.
Why You Don’t Want to "Run the Race to Zero"
I wrote a piece years ago that talks about the race that you can’t win. Something I call the race to zero and why it’s such a bad idea for businesses. What typically happens is you have soft business results in a given period, a given month, a given week, a given quarter, what have you, but it’s bad. So you reduce prices in an effort to attract more interest in your business, to attract more sales.
Invariably, you have to cut service or marketing to then pay for those lower revenues, that lower price that you’re doing. So this is really the first place where you start to go wrong because as we all know, customer experience is queen. Now, in some cases, your short term sales do improve. You do drive more volume. However, in many cases they don’t. And the reason that they don’t is because your competitors can see your prices just as easily as your customers can because of the price transparency, because of the radical transparency that digital creates. Everybody knows what your prices are. And so your competitors can cut their prices right away too. And so they offer a sale or a discount or a deal or what have you so that they begin to eat into whatever short term and possibly non-existent advantage you may have received from your initial price cut.
The Negatives of "the Race You Can’t Win"
But two big negatives follow from this. Well, actually three, but I’ll get to that one. The first is customer expectations of what your product is worth go down. Because you just told them, hey, this isn’t worth as much as it used to be. And the second thing is, because you had to cut either service or marketing to pay for the newer, lower price, they’re typically not going to get as good an experience. And so that’s a huge problem that then tends to lead to additional soft business results. I didn’t make this up. This has existed for years and it’s a death spiral. It’s a race you cannot possibly win. And much like war games, the best way to win is don’t play the game in the first place. Don’t run the race.
Which, I want to be fair, you’re probably sitting there right now going, yes, but we’ve got this big emergent health crisis and it’s really hurting our business right now. And what do we do? And that’s fine. That’s completely fine. That’s a fair question. I’m going to answer that. But I cannot emphasize enough that the right answer, usually, is not to lower your prices.
What Can You Do Instead?
So what do you do? Well, the first thing you have to remember is customers, believe it or not, don’t care about the price. I’m completely serious about this. Now, obviously when we look at price elasticity curves and things like that, we all know that as your price goes up, your sales go down. But as your price goes up, typically your profits go up too. And so the amount of money you make as a company, up to a certain point, can be improved by raising prices, by holding prices.
The reality is that if people who bought from you are complaining about price, it’s not because your price was too high. It’s because they didn’t see the value they received for what they paid. This is always true.
We’ve done years of things like sentiment analysis on social posts to see what customers care about when they’re talking about a product or service. And invariably, if they’re happy about the price, they typically don’t bring it up. It’s very rare that someone will bring it up other than them to say, maybe, oh and I got a good deal too. But when they talk about the product being expensive or the service being expensive, they almost always are really talking about how unhappy they are with the value that they received. And that’s what you need to focus on. And I’m going to come back to this in just a second.
Why Customers Care About Value
But just to point out how you know this is true in the real world, you may be familiar in economics with the idea of a Veblen good.
Now Veblen good is a luxury good. It’s the type of good that breaks the price elasticity curve. In a Veblen good, the more you charge, the more you sell. It’s the weirdest thing. It really only works for luxury goods or very rare types of experiences and the like. But it’s a perfect example of why price is emotional, not logical. You know, why wouldn’t I want to buy a high end watch or a high end car or a really great suit or a really great home for a lower price? Because "if the price is too low," the customer thinks, "how good could it possibly be?"
The price is a signal that they’re maybe not getting good quality. And that only works if the price is driven by emotion and feeling more than it’s driven by some logical spreadsheet that says above this price, it’s too expensive and below this price, it’s a good deal.It is an emotional response.
How to Think About Value Adds in Marketing
And so what you want to do when times get tough is not lower your prices, but think in terms of how can I increase value? Think what can you add into the price to make your offering more valuable to your customer?
- Can you provide additional service on top of what they already get?
- Can you offer additional content or exclusive access to either information or resources or people?
- Can you partner with others in your market to provide discounts on complementary goods or services?
- Look for those opportunities that help you increase the value proposition that the customer gets for the dollar that they pay, for the money that they pay, and they are going to be more inclined to buy from you.
Business Benefits of Offering Value Adds
Offering value adds also makes it much, much tougher for them to compare you with your competitors. Because your offering now isn’t like for like, you’ve suddenly bundled in additional stuff. Some of these may have cost associated with them. So start looking first for things that you can offer that don’t increase your costs dramatically, or at all, if you can.
How to Get Started with Value Adds
Look for things that have a low cost to you first, but do increase the value that your customers see. And if you do it really well, and I’ve seen lots of examples of this over the years, can you look at any of those as potential upsells or levers to future sales? We know it’s always easier to sell to an existing customer than it is to find a new one. So if you’re offering them some additional service, some additional product, some additional benefit, can that itself be a freemium offer where you give them that, included in the price they paid, you know, a subscription to some content, a subscription to some insights, a subscription to some additional features. Oh, and you want to unlock the next level up? Well, that’s just an extra X dollars per month or X dollars per year.
And it can be a great way to actually improve the revenue that you receive during a downturn, and not just cut the revenue that you receive. So I started by saying, hey, we’re looking at coronavirus. We’re looking at is this going to have some big impact on the economy? Is it going to hurt us or push us into a recession? And we don’t know, right? I have links in the show notes to other episodes that talk about these topics and give some insights into things you should be watching for.
But what you don’t want do is you don’t want to cut your prices.
Conclusion: The Lost Art of Value Adds in Marketing
Instead, you want to deepen the relationship with the customer by continuing to offer them a great experience and increasing the value that they receive for the money that they give you. And when you do that, you’re going to find yourself in a good position, not only for any economic softness we may be facing right now or in the coming months, but in a significantly better position relative to your competition. Especially when the economy gets good again, because you were the one who actually helped the customer, gave them a better experience and offered them a better value overall. And that’s always going to be a win.
Now, looking at the clock on the wall, we are out of time for this week. I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes, by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast.
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