Discounting by Addition
April 24, 2006
By: Matt Michel
The owner of an ad agency needed to replace a furnace. Since his largest account made furnaces, he was going to buy a product they made. He had a contractor prepare a quote for a new furnace. The price seemed reasonable and he could easily afford to pay twice the amount quoted. But he had an idea. He wanted to try an experiment.
As the head of an ad agency, he was busy and didn’t have time for a stream of salespeople. He wasn’t going to call anyone for another bid. Yet, he didn’t tell that to the contractor.
Instead, he thanked him for his quote and said he would get back to him. A couple of days later he called the contractor with the news that a competitor gave him a price $500 less for the same product. Immediately, the contractor said, “I’ll do it for that.”
In sales, we call this “leaving money on the table.” And though this example occurred years ago, I doubt much has changed.
Still, there are times when you do need to discount. Instead of taking dollars off, discount by addition.
In his excellent newsletter (http://ypcommando.com/newsletters.html), Dick Larkin reports how Donald Trump discounted by addition. Just as Trump was finishing Trump Tower, a *very* expensive set of condominiums located in Manhattan, the New York real estate market tanked. If Trump wanted to sell his condos, he would have to cut the price.
The Donald didn’t want to cut the price and didn’t. Instead, he ran a special, bundling a Rolls Royce with each sale. The fact that he would have had to discount the condos by the price of a Rolls, if not more, gives you some idea of the price of a condo in Trump Tower.
As Larkin pointed out, reducing the price by $100,000 or more would have only aroused yawns. Yet, the pure extravagance of bundling in a free Rolls Royce generated press. People bought at full price in order to get the “free” Rolls and Trump slipped out of another disaster of his own making.
Discounting by addition is common. When other car dealers were discounting their prices, Roger Meier Cadillac in Dallas started bundling frequent flier miles with the purchase of a car. It helped them avoid other discounts and incentives and resulted greater showroom traffic.
The next time you find yourself in a position where you feel it necessary to discount, consider discounting by addition. Discount by adding something of value. Consumer psychology is a funny thing. Sometimes people will spend more for a bundle than they would if buying things separately, especially if they think they’re getting something “free.”
Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2004 Matt Michel
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