Everybody these days is looking for a deal. Or at least that’s what many business owners believe. They spend good money sending out coupons, marketing their “today-only” specials and trying to drum up business for their BOGO deals (and if I have to tell you what BOGO means, then you aren’t the kind of customer they are trying to attract).
But you can win customers without discounts. In fact, I’d argue that you can attract customers by increasing your prices. And I have a good example that proves I’m right.
Last year, Cards Against Humanity raised its prices as a Black Friday promotion. Cards Against Humanity is a card game that is apparently popular with the kids (as evidenced by its Amazon page). Now whether or not you would actually buy a game called Cards Against Humanity, you have to appreciate the courage they had to implement the strategy of raising their prices for Black Friday as opposed to lowering them. Seems pretty counter-intuitive, but to the management of this company it was just stupid enough to work. Max Temkin, a Cards Against Humanity co-founder, explains:
“After some discussion, Ben (Hantoot) came up with the idea of raising the price for Black Friday and that was so outrageous that I fell in love with it instantly. Two books I read recently that informed my decision were Malcom Gladwell’s David and Goliath and Marty Neumeier’s Zag which are both … business/science books that make the somewhat-obvious point that being small and nimble can give you advantages that huge lumbering opponents don’t have. Anyone can do a sale for Black Friday, but nobody but us could get away with raising their prices and risking a ton of sales just to make a joke.”
I’m sure you’re wondering how they did. I’ll let Temkin tell us:
“So how did we do? A little better than last year. We kept our position as the best-selling toy or game on Amazon. My guess is that peoples’ buying decisions just weren’t that affected by $5.”
Now while I disagree with his opinion on Malcolm Gladwell, I don’t disagree with his strategy. I have had this conversation with many of my clients and watched many times how raising prices has increased revenue without costing them valued customers. Read that last line from Temkin again. Cards for Humanity kept the top spot on Amazon while increasing its prices 20 percent. How much do you think that added to the bottom line? I’m betting it was significant. So why don’t more companies do it? Because as business owners, we think our customers care about our prices a lot more than they do.
Here’s an example: I had a great dry cleaner that I went to when I lived at the beach. He was always extremely friendly, did a great job, and always had my clothes ready when he said they would be done. One day I walked in and he handed me the bill, apologizing that it was about 10 percent higher than normal. He said he had put off raising prices as long as he could but he had no choice, and he hoped I wouldn’t be upset. I answered truthfully: “If you wouldn’t have told me about the price increase I would never have noticed.” Because he did such a great job I didn’t pay attention to what I paid him, as it was always reasonable considering the service. He could have raised my price 20 percent and I wouldn’t have blinked.
So what’s the lesson? Instead of spending time worrying about how much you are charging your customers, spend time finding ways to make your product or service so great that it doesn’t matter what you charge. It’s a lot more fun for you and a much better experience for your customer.
You can read the full post regarding Cards Against Humanity and the decision to raise prices here. After you’re done, raise your prices and enjoy a more profitable remainder of 2014!
Robert J. Rickert CPA, PC focuses on giving its clients timely, accurate and relevant financial information to help them make informed decisions about their businesses. The firm provides customized solutions to meet the specific needs of its clients. Services offered by the firm include CFO and controller services, crisis management, interim financial management, acquisitions and business buying, divestitures and business selling, litigation support, business tax services, and tax dispute assistance for individuals. For more information, visit rickertcpa.com, call 910-319-9127 or email [email protected].
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