Bear minimum; when discounts go bad

What could be less likely to cause a riot than the simple, cuddly, teddy-bear?

Turns out most things. 

Last week a company called ‘Build a Bear’ had a Pricing promotion that enabled kids to buy a bear for the price of their age. If your child was five, for example, it would cost £5. Bearing (ahem) in mind that these usually cost £20+ - and in some cases up to £50+ - it was an offer that many parents decided was too tempting.

Dragging their kids out of school, parking illegally then indulging in hand-to-hand combat with fellow soft-toy fans, these are indicators of a desperate need for a product at this price.

As the fallout from the promotion continues to ripple – the Chartered Institute of Marketing thought that the offer brought everything about Marketing in general into disrepute – let’s ask the question that confronts every entrepreneur; what price should I pitch my product at and are there any circumstances where I discount it for growth?

The first part of the question is the hardest. It’s a feature of the Growtion Formula that ‘Pricing’ is the fourth Element, after Concept, Design and Service. It’s here because the preceding three will have given you an understanding of a number of things relating to Pricing;

  1. Cost of production
  2. Service level (extraordinary / basic, etc)
  3. Competitive environment

Generally speaking, for the majority of young businesses some flexibility on Pricing is desirable. Nailing a single price-point on the product and sticking rigidly to it can cause all sorts of problems. In general terms, the most successful Pricing strategies that I have worked with are those that have three levels of product – let’s call them Platinum, Gold and Silver.

The Silver package is a cut-down version of the Gold package, sharing some features but not the most attractive nor the most profitable. It’s ‘entry-level’, gets customers used to doing business with you and increasing comfort around the product’s quality whilst also driving desire for more.

The Platinum package is a VIP version of the Gold, targeted at the top-10% of your potential audience with featured to match. Its Pricing has to feel exclusive in the purest form of that word’s meaning – it ‘excludes’ those that simply can’t afford it. Obviously, the feature set needs to reflect the quality of the promise but it’s a really important part of Pricing because it ‘frames’ the Gold package.

The Gold package is your profit-driver. It’s the product that you will most likely have started out with and the one that you know you have the largest potential audience for. Silver and Platinum provide a context that gives permission for the customer to choose the middle one – and everyone prefers to feel that they’ve got control over a choice than are being told “It’s this or nothing.”

Being able to choose their Price point drives up engagement and sales. A smaller version of each bear at £5 would have encouraged a more rational response from customers and an upsell to the standard product at a higher (but still discounted) rate would have stopped a lot of the fighting.

Make sure that you don’t under- or over-sell your services and give significant thought to what Platinum, Gold and Silver versions of your products might look like. Even if you only stick with one for now, the thought process should leave you clearer on what Pricing is best to capture as many new customers as possible – without the fur flying …