Pricing and Revenue Management

Restaurant Happy Hour Pricing: How to Improve Profit Margins

Business Optimization, Pricing and Revenue Management

by Ryan Biesecker, Senior Consultant

Restaurants and bars already operate on razor-thin margins in a highly competitive industry. In order to survive, operators need to execute discounting tactics such as a happy hour thoughtfully.

Restaurants all over the world have offered discounted pricing on alcoholic beverages, and sometimes food, before dinner since at least the 1920’s. Today, a good happy hour pricing strategy will drive customers to bars and restaurants. The premise is simple: offer discounted prices at a quiet hour to attract customers. Just because the practice is common and straightforward, however, doesn’t make it universally profitable.

Here's How Restaurants and Bars Can Execute Profitable Happy Hours:

1. Identify Low Volume Days and Hours That Need Additional Demand
2. Assess Which Food and Drink Offerings to Discount and by How Much
3. Communicate the Offer to Customers to Bring Them In
4. Evaluate the Happy Hour Regularly and Adjust As Needed
1. Identify Low Volume Days and Hours That Need Additional Demand

In order to set a happy hour, restaurant operators need to first identify when it should be offered. A common period is between 5 – 6 p.m., but that doesn’t make it right for every bar and restaurant. A good happy hour pricing strategy is timed right for the location it’s offered in. Use the following tips to determine the “right” time is for a happy hour.

How to Measure Demand

Operators should gather date, time, and revenue of transactions from their POS system. Then, organize these transactions by the day of week and time of day. Some period of time should stand out as lower demand than others: these will be the best times for the operator to discount prices. Don’t forget to measure the average checks during these periods before choosing a time to discount. If many customers are already paying full price, discounts may hurt more than help.

If a happy hour is offered during busy hours, the restaurant may overflow with demand that operations can’t handle. Additionally, a happy hour during already busy times will likely dilute the profitability of those who would have come anyways.

Determine Length of the Happy Hour

With knowledge of the restaurant’s low-volume periods, operators should decide how long to run the offer. Contrary to its namesake, a happy hour should be exactly as long as it needs to be. If the location needs volume boosted for three hours leading up to dinner, so be it. Be careful not to offer for too long, however, as extended discounts can reset price expectations.

Considerations Vary by Location

Operators should also consider competition and environment when determining happy hour timing, and whether the restaurant needs one at all.

Competition can be healthy or harmful in this instance. A taco shop and a neighboring bar can partner up to offer a happy hour at the same time: one offers discounted food and the other offers discounted drinks, attracting customers to both businesses simultaneously. On the other hand, if multiple restaurants offer a similar happy hour within a few blocks of each other, their offers will directly compete, forcing customers to choose.

Consider the location’s surrounding environment as well. Is the restaurant in a banking district where employees get off work at 5p.m. sharp? Or is it in a neighborhood where families can walk to get a bite in the afternoon? For instance, take a restaurant located near a factory where workers are covering three shifts. That unusual labor market might create demand from 11PM-Midnight when the second shift is getting off work. Restaurant owners should rely on data and local knowledge to identify these areas by location.

Finally, operators should weigh the impact of not offering a happy hour at all. If a restaurant has lines out the door at all operating hours, discounting food and drinks is more likely to harm margins than help.

2. Assess Which Food and Drink Offerings to Discount and by How Much

Menu engineering is the best method to identify happy hour menu pricing decisions. See the article by Stephen Davis, Integrated Insight’s VP of Pricing and Revenue Services, for detailed menu engineering instructions.

Menu Engineering Matrix

Once the menu items are categorized as Stars, Work Horses, Puzzles, or Dogs, choose a diverse set of beverages that are mostly Puzzles. As a reminder, Puzzles are highly profitable but with low volume. The high profitability leaves room for these alcoholic beverages to be discounted and remain profitable for the restaurant. However, the offer might not be enticing to a large enough crowd if only disparate drinks are thrown on a happy hour menu. Don’t be afraid to bolster the menu with one or two Stars (popular items with high profitability) at less of a discount.

Not all locations need to offer discounted food during a happy hour. Cheap drinks may be enough to get customers in the door. Start by only offering discounted drinks, then add appetizers and other sharables if more volume is needed or checks are too small. Be sure to assess the food items’ menu engineering category as well and follow the same practice as with beverages for a strong happy hour pricing strategy.

3. Communicate the Offer to Customers to Bring Them In

A happy hour special will dilute profit margins if a restaurant offers discounted prices without messaging. Communicate the new happy hour outside the restaurant to pull in the volume needed. This response to discounted prices will need to come from existing customers visiting frequently and at quieter hours and from attracting new customers.

There are opportunities to market the happy hour offer to in-house customers without disparaging the value of full price menu items.  Servers can message the offer when delivering the signed receipt with a warming, “come back next week for happy hour!” Additional opportunities include leveraging CRM to send follow-up texts or emails to restaurant guests with the happy hour promotion.

Outside of the restaurant, use organic online channels and word-of-mouth to attract new customers. Have employees encourage customers to bring their friends to generate word-of-mouth demand. Once launched, ask the occasional customer how they heard about the happy hour menu to better understand what works.

Wherever the communication is distributed, ensure the message is clear by sharing a takeaway detail beyond the name “happy hour.” For example, “$5 Draft Beers Every Tuesday!” states the price, product, frequency, and day of week in a memorable message that’s easy to memorize and fits on a receipt.

4. Evaluate the Happy Hour Regularly and Adjust As Needed

At the end of the day, the key to continued profitability is to ensure the happy hour pricing strategy performs as intended. Operators should set goals with several Key Performance Metrics (KPIs) and return to them on at least a monthly basis. While gross margin should be an ultimate metric for profitability, transactions/hour, revenue per hour, table turn time, total food cost, and operating expenses also play a key role.

Customers are often willing to share feedback as well, which can inform discounting decisions. Listen to their thoughts but be sure to take them with a grain of salt. For example, a regular might say there aren’t enough discounts, but return to purchase discounted items week after week. On the other hand, if customers complain their favorite item isn’t discounted for happy hour and food sales are low during that time, consider meeting them halfway.

Be prepared to pivot tactics as needed but be careful not to change too drastically or too often. Maintaining a strong value message with customers is key, and customers will be unwilling to keep up if the days, hours, and offers all change frequently.

Supporting Your New Happy Hour Strategy

Consider other operational support needed to support the new happy hour. Maintain staffing and inventory to handle higher volumes. The last thing a restaurant needs is to sell out of resources at a low price, leaving the full-paying customers with less options.

Identify the best happy hour times, choose profitable food and drinks to discount, message the offer, and measure performance. Restauranteurs can use these tools to confidently execute a happy hour strategy that works well for both them and their customers.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com.

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Customer Loyalty Programs: The Ultimate Guide

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How Hoteliers Can Optimize Revenue with Post-COVID Demand

Business Optimization, Pricing and Revenue Management

by Stephen Davis, VP of Pricing and Revenue Services

As hoteliers look to capture limited demand and maintain yields during lingering COVID-19 impacts, optimizing yield on each guest is critical. Too often hoteliers act as facilitators, ensuring a great experience but not treating amenities as potential to capture additional revenue. From bundling vacation packages during the booking process, to making it easy for guests to purchase commodities while visiting, revenue optimization strategies that stretch beyond room revenue may make the difference between profit and loss during a potentially tumultuous year. Let's look at how hoteliers can optimize revenue with post-COVID demand.

Table of Contents

1. State of the Hotel Industry Recap
2. Revenue Generation Strategies to Make the Most of Every Guest
3. Efficient Marketing Strategies to Drive Demand
4. Sales Channel Strategies for Sustainable Growth
1. State of the Hotel Industry

Though the recovery from COVID-19 is still ongoing, the U.S. recorded its highest monthly performance levels in May 2021 since the beginning of the pandemic, according to data from STR.

Gross operating profit for U.S. hotels reached 70% of the comparable 2019 level, according to STR‘s May 2021 monthly P&L data release. While demand, revenues and GOP continue to uptick, labor spending remained flat from the previous month at 64%.

 

PR_20210701_US_PandL_chart1.png

Travel volumes are expected to be nearly fully recovered to pre-pandemic levels this Independence Day (July 1–5) as more than 47.7 million Americans plan to travel.

While the improvement is encouraging, many hotels are still experiencing financial difficulty, and even more are seeing staffing issues as evidenced by the stagnant rate of labor costs.

Hoteliers are seeing an increase in demand but need to optimize RevPAR potential by utilizing revenue generation strategies to make the most of every guest, particularly as there is an opportunity to capitalize on the pent up demand expected in the summer months.

2. Revenue Generating Strategies to Make the Most of Every Guest

The potential to drive revenue does not end once a room is booked. On-property revenue opportunities should be a focus for every hotel and resort. Not only does it improve the bottom line, it also enhances the guest experience. Opportunities include bundling, upgradable amenities, and food and beverage optimization.

capture additional spend

Bundling

Packaging and bundling provide an excellent opportunity to create a holistic experience with added value. The package can be promoted with a savings message to the guest. Packaged vacations relieve travelers of decision making once their vacation starts, which can provide a more enjoyable experience as well as capture higher revenue per room night.

An example of a bundled package message may be, “book three nights and receive complimentary transportation from the airport to the hotel for just your immediate party.”  The inherent savings of not having to pay for a taxi or shared ride service is clear to the guest.

Another example may be, “book three nights and receive 25% off one dinner meal at our restaurant.” This is also a clear savings message that may result in incremental meals served in the restaurant. Tickets to local activities (for which you receive a commission) are a great addition to vacation bundles and can be customized based on consumer segment. For example, a local food and wine tour could be appealing to a couple traveling alone. A family of four with young children may spark to the local theme park or children’s museum.

Upgradable Amenities

Once traveling, guests are often willing to pay a little more for added perks such as late check out, a premium view, or higher-speed internet access. Review your own amenity offerings which could be considered beyond the standard expectation to identify potential candidates. Where possible, bundle upgradable amenities to avoid the perception of “nickel and diming,” and keep the number of upgrades reasonable. If half the rooms in a hotel are a premium view, and you’ve categorized them into several buckets, it quickly becomes overwhelming to guests.

When adding upgrade opportunities, be sure to assess the cost and profit potential for every sale. Offering guided running tours may sound like a great idea, but if it costs more to operate than the revenue it generates, it won’t do much good for the bottom line. Most amenity upgrades are reasonably priced, but even a $10 upsell purchased by 5% to 10% of booked rooms can have a significant impact on revenue and profitability, given that most upgradable amenities typically come at no cost to the hotelier.

hotel luggage concierge

For example, offer guests an “Upgrade Your Stay” package when they check in that includes higher-speed internet access, late check out, and a free non-alcoholic drink with the purchase of any snack item from the pantry, per night. The first two have little to no cost to you and the free drink could entice someone who did not have an intent to visit the pantry to actually make a purchase, or repeated purchases, resulting in some incremental revenue to offset the cost of the drink. At $10 per night, this upgrade could be an easy decision for many travelers, but make sure you can still turn the rooms with late check outs.

Food and Beverage Optimization

Almost all hotels have some form of food and beverage sales, whether a restaurant, bar, or sundries shops in lobbies. Opportunities to optimize revenue from these outlets often fall to the wayside.

To start, you can implement menu engineering principles to feature the most profitable and popular items more prominently on the menu to sell more plates that earn high contribution margins. To learn how to implement menu engineering, read our article, Menu Engineering Strategies for Restaurants to Optimize Revenue.

 

hotel server
3. Efficient Marketing Strategies to Drive Demand

With revenue down, marketing dollars need to be hyper-efficient. These strategies have proven to drive demand efficiently, increasing profit earned per guest.

Leverage Digital Channels

Digital platforms allow the flexibility for hoteliers to adapt marketing messages as consumer sentiment fluctuates in response to COVID-19. With revenue down, marketing dollars need to be hyper efficient. Targeted, direct communication to consumers can be a powerful asset for the hotelier looking to stretch their budget.

Target Past Visitors with a Return Offer

Past guests who had a good experience are already familiar with your product and more likely to repeat an experience than risk the unfamiliar. Target past visitors with a return offer as a “thank you” for past business with messages that make them feel appreciated and welcome.

Communicate Safety Messages

When selecting a hotel, enhanced cleaning and hygiene practices are still a high priority according to the AHLA State of the Hotel Industry 2021 Report. Guests also feel more comfortable when properties communicate these enhanced cleaning practices. Nearly seven out of ten travelers report wanting to hear directly from hotels what measures properties are taking to ensure safety.

4. Sales Channel Strategies for Sustainable Growth

Third party sales channels can be a boon for business, but they also pose risks. With COVID-19 impacting demand, now is the time to assess your channel strategy and whether it is providing a net benefit.

Over time, third party agreements have the tendency to get unruly. Agreements are made year to year and often new partners are added, but many hoteliers do not perform the due diligence to optimize their distribution strategy. Below are some steps to take to ensure your strategy is working for you and not against you.

Channel strategies

Realign Commission Structure

Tie your commission structure to volume requirements by providing the most lucrative commissions to the channels that drive the highest volume.

Review Sales Volumes

Review volumes to ensure partners are performing according to their agreement. If you don’t already, create a report for third-party sales and the respective commissions to analyze if partners are living up to their end of the agreement. For channels with low volume and high commissions, consider ending those agreements.

Explore New Channels

New travel aggregators are being created daily and there are a multitude of companies regularly looking to provide value-added perks to employees such as standing discounts. Both of these options are worth exploring further and regularly looking for new players that could expand your reach.

Sales channels are often overlooked for optimizing revenues. Taking the time to assess your third party strategy could reveal significant opportunity to increase yields and drive incremental demand.

Get Started with Revenue Optimization

Unfortunately, the lingering impact of COVID-19 could continue to make profitability a challenge. Hoteliers will need every tool in their revenue management toolbox to be successful. While there may not be a silver bullet to demand generation, optimizing product, pricing, and marketing will drive revenue and set you up for success.

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Customer Loyalty Programs: The Ultimate Guide

Business Optimization, Marketing, Pricing and Revenue Management

by Stephen Davis, VP of Pricing and Revenue Services, Integrated Insight

Loyalty programs have become pretty commonplace for retailers in today’s market. It’s estimated roughly 7-in-10 adults are a member of at least one loyalty program.1 From simple punch cards to elaborate point structures, you can find them in just about every industry.

Loyalty reward programs are powerful tools for businesses. Offering perks for loyal customers improves retention and encourages new customers to engage.

Let’s first answer some common questions about loyalty reward programs. Then we’ll jump into tactical components and strategies to help make sure you’re getting the most out of it, regardless of the type of program.

What Is the Goal of a Customer Loyalty Program?

Determining the correct program to implement can make a difference in the value of the loyalty program for consumers and your business. There are three key goals loyalty programs aim to meet:

1. Increase Customer Retention

One of the key targets of a successful program is the ability to retain customers. According to a study by Marketing Metrics, the probability of selling to an existing customer is at least three times higher than selling to a prospective customer.2 So maximizing retention means an easier sell.

2. Drive Incremental Purchases

A successful program should be structured to incent more purchases among loyalty members in a way that doesn’t “give away the farm.” More than 60% of loyalty program members report modifying their spending to maximize loyalty benefits.3  Achieving this goal is attainable with the right structure in place.

3. Better Understand Customer Behavior

Loyalty programs provide more than one “win-win” for businesses and consumers. In addition to providing more value for customers and more revenue for businesses, loyalty programs also provide critical insights on customer behavior.  Convincing customers to participate in a program provides a way to learn more about them, including what they like and how they shop. Gaining clear insight on loyal consumers provides opportunity for meaningful engagement, which results in a better customer service experience.

It has become an expectation, not a differentiator, that companies put the wealth of data consumers share with them to work on their behalf.  In a business environment that has become less personalized towards the consumer due to technology, tracking consumer habits presents an opportunity to engage customers on a personal level once again.

In recent years, companies have taken this a step further by tracking purchases of customers and creating customized offers for those who use services. For instance, the CVS ExtraCare rewards program tracks purchases and prints coupons on receipts based on transaction history. Data from Bond Brand Loyalty shows that 87% of participants in loyalty programs are interested in having purchasing behavior and activity monitored in order to receive personalized rewards.

What Type of Loyalty Program Should I Use?

Let’s break down a few of the most popular loyalty programs that businesses use to increase customer base and encourage incremental purchases. There are benefits and limitations to each, so certain types of programs may work better for your business depending on products sold and available technology.

1. Punch Cards

Punch cards are a tried and true loyalty program tactic. But the days of carrying around scraps of paper with unique punch holes are behind us. Today, nearly all consumers would much rather interact through modern technology.7 In recent years, punch cards have gone digital as businesses have published apps. Even those companies that have not published their own apps have been able to use third-party apps for their rewards programs.

Going digital with punch cards offers a few advantages. In addition to eliminating the need for keeping track of paper punch cards, a digital approach can reduce fraud by eliminating the ability for a customer to punch their own card and take advantage of the business. Additionally, it can lower cost to businesses in the long run and allows business to collect data to profile customers – one of the key goals of a loyalty program. Digital programs provide real-time data with each use, whereas punch cards only provide insights once customers complete earn all punches and have earned a reward.

The goal of the punch card style program is to incent incremental purchases with the offer of a free or greatly reduced purchase in the future. However, setting a fence around those reward items can help make a punch card even more efficient. For example, rather than allowing a customer to get a broad discount on their 11th purchase – create a structure so that the award after 10 purchases is an array of potential items, or discounts, fenced to specific products. A loyal customer is likely to use an indiscriminate discount on a product they’d already purchase. However, offering products that need a boost or are not frequently bought by customers can help incentivize trial purchases of other products you sell and avoid dilution.

2. Points

Points systems are one of the simplest loyalty reward structures. Customers spend X number of dollars to receive Y number of points, which can then be used as a currency at your business. The points system is great for capturing many types of customers because it is based on the dollar amount that is spent. This means that all customers receive the same incentive relative to the dollar amount spent. 

The key to a successful points program is setting a structure that transparently communicates how customers earn points, what their value is, and what they can redeem. Being transparent about the entire structure upfront builds trust and helps customers see why the program is a benefit for them.

3. Paid Subscriptions and Memberships

Paid subscriptions and memberships create a system in which only people who participate (pay money) for a service or privilege can access products or deals offered by a company. Companies like Sam’s and Costco use these memberships and offer huge discounts for products by selling in bulk. Online retailers, such as Amazon, also use this system in which members have access to special benefits and services, such as free shipping. These memberships are often profitable because they have low cost for customer acquisition while giving substantial benefits to customers. This allows these companies to attract consumers to buy subscriptions or memberships at a high volume.

It’s easy to see how a paid membership could pay off for a retailer. Receiving money up front regardless of usage is attractive, but that’s not the end goal. Retailers with paid loyalty program memberships have to leverage the relationship to pull members into higher levels of spending, but when faced with strong savings, there is little benefit for customers to shop elsewhere.

4. Credit Cards

Many larger businesses pair with credit card companies to create cards which have added incentives for spending at a brand’s location. While a typical credit card may offer 1-3% cashback at retailers and restaurants, these cards often offer upwards of 5% cashback. This brings in customers as they are fundamentally receiving a discount from purchases at the brand, though they can spend the money received through cashback perks anywhere.

The real value of brand credit cards for a business though are the referral payments for getting a customer to sign up for the card. Though this can be very attractive, it typically only pencils out for major retailers with a national brand.

Conclusion

Picking a loyalty program method will depend on the nature of a business and technology capabilities. But in nearly all instances, a loyalty program can be designed with the right value proposition to drive desirable behaviors.

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Schedule a free consultation to discuss your business needs.

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Restaurant Happy Hour Pricing: How to Improve Profit Margins

Is your happy hour pricing strategy helping or hurting your profit margins? Here are important factors to consider when evaluating the profitability of discounting your food and beverage offerings.

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Identifying Opportunity for Hotel Revenue Amidst COVID-19 Challenges

Business Optimization, Pricing and Revenue Management

by Stephen Davis, VP of Pricing and Revenue Services, Integrated Insight

The total economic impact of COVID-19 on the travel and leisure industry led many hotels and resorts to experience one of the softest summers in recent history. Grand Traverse Resort and Spa in Traverse City, Michigan, was not immune from the impact as groups and conventions were cancelled and some families chose to pass on their summer vacation.

Grand Traverse Resort and Spa engaged Integrated Insight in late 2019 to identify revenue opportunities. The resort is a beautiful property with excellent service, world-class convention facilities and a strong EBITDA – the dream scenario for many hoteliers across the country. But we saw opportunity for even stronger revenue and profit.

Grand Traverse Resort faced ongoing revenue management challenges that many resorts wrestle with: balancing group and leisure bookings to achieve the highest profitability. There were difficult questions to answer. What base volume of group bookings achieves the highest profitability, while complementing leisure demand? And how do you get confident turning down groups during periods in which leisure business would be more profitable?

When the demand for group bookings was compromised due to COVID-19, the resort had little risk shifting its revenue management strategy and decided to get creative. Fortunately, because of the resort’s location in the northwestern part of Michigan’s Lower Peninsula, it was among the first in the state to be able to re-open.  With groups and conventions canceling, the resort had more capacity for the summer than ever before.

Integrated Insight worked with leadership to launch a successful room promotion when the resort reopened at limited capacity. We helped the resort strategize a marketing campaign to make consumers feel safe and excited for outdoor recreation.  As it turned out, that’s exactly what Michigan residents wanted to hear. Pretty soon the resort was seeing the remaining summer weekends book up with leisure business at rates well above prior years.

In spite of COVID-19, Grand Traverse Resort achieved its highest ever average summer weekend rates and had near sell-outs during July, August, and early September weekends. It was fulfilling to see Grand Traverse Resort and Spa have enough success to remain open for the summer. It was also strong confirmation that they were limiting leisure business in prior summers by booking too many convention room nights at rates well below leisure business.

Typically, changes to revenue management strategies take incremental steps for clients to execute. We saw the opportunity to move towards more leisure business and higher rates, but doing quickly is often easier said than done. COVID-19 forced them to book more leisure and proved their rates could be higher. It was a beautiful silver lining, really.

In 2021, Grand Traverse Resort is highlighting the safety of its convention facilities and the steps they are taking to allow socially distanced gatherings - balancing both leisure and groups to yield optimal revenue. When faced with uncertainty, we are often willing to take more risk. In doing so, Grand Traverse Resort and Spa discovered confidence moving forward about their business, value, and future opportunities.

How Can We Help?

Schedule a free consultation to discuss your business needs.

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The Temptation and Risk of Discounting in a Covid-19 World

Business Optimization, Pricing and Revenue Management

by Scott Sanders, President, Integrated Insight

As businesses reopen, many are grappling with the need to discount to generate demand. While it may seem like the right thing to do, will discounting really help generate profitable demand?

The tourism industry has been impacted significantly by the current pandemic. Companies are gathering insights to understand how individual consumers and families have been impacted, and specifically, when consumers will begin to travel again. Published research reveals some interesting insights.

- COVID-19 is the number one barrier to travel. Health and safety is critical to getting consumers traveling again.

- Price, often a top barrier in leisure experiences, has fallen much lower in the rank order. As a result, lowering price alone is not likely to get consumers back in the game.

- Most consumers have been impacted by the pandemic and expect to spend less on out-of-home entertainment this year.

As consumers adopt new spending habits, organizations need to evaluate their pricing strategies.  Promotions can be a great way to generate new customers and drive growth.  However, discounting tends to be a short-term solution. You’ve heard the old adage, “too much of a good thing can hurt you.”

The same holds true for discounts, if not done correctly.  Frequent discounting can have unwanted consequences, such as devaluing your product or degrading price integrity. And once consumers are trained to wait for the next offer, frequent discounting will erode base profits.

Before deciding whether to implement discounts, ensure your company has created a holistic pricing strategy. If your organization doesn’t have a holistic pricing strategy, now is the time to craft one.  Learn more in our article: How to Develop a Successful Pricing Strategy.

Discounts and promotions have a key role to play in every organization’s pricing toolbox and strategy.  Effective promotions typically deliver on all of the following:

- Lend themselves to compelling marketing messages.

- Target specific audiences and time periods.

- Are fenced to avoid dilution.

- Have a strong sense of urgency.

- Can be yield managed.

When evaluating discounts especially in today’s environment, consider offers that encourage higher than average spend in lieu of discounting core products.  Also ensure sufficient marketing and sales budget is available to create demand for the offer and focus on communicating value over price.  Leverage the pricing structure to pull consumers into higher yielding products.

It is also critical to measure promotions to determine if they deliver on established goals. Do the math to understand cost versus benefit and develop a “test and adjust” culture to continue building on what works.

Let’s look at a couple of recent promotional offers and contrast differences.

Universal Orlando Resort just released a Florida Resident offer to increase in-market demand: “Buy a Day, Visit Every Day Thru Dec. 24 For Free.”

the risk of discounting in a covid 19 world

Rather than discounting the base 1-day 1-park ticket, the offer is providing a buy-up opportunity. If guests upgrade to a 1-day 2-park ticket, they can receive admission for the rest of the year for free.

The promotion is set up for success for several reasons.

- It is fenced to Florida Residents.

- It offers value and has a strong marketing message.

- The finite booking window creates a sense of urgency to purchase.

- It is structured to avoid dilution of the base business.

- It has a clear usage window.

- Revenue improvement doesn’t rely on incremental sales.

- It incentivizes repeat visits and in turn increases in-park spending.

Now let’s look at a different kind of offer: a single day discount offer. A good example is a recent offer by a regional amusement park for a 1-day discount in collaboration with Coca-Cola: “Buy your tickets here and save up to $30.”

the risk of discounting in a covid 19 world

This promotion is structured to attract visitors with a deep discount message on the core single day ticket. Rather than speaking to a specific market, the offer is available to anyone online.

This offer might be compelling, but it carries a higher risk than the previous offer because it:

- Devalues the core ticket product.

- Is available to anyone who buys online versus a specific audience.

- Relies on driving incremental sales to be successful.

- Has no booking window or usage window to create urgency.

Both of these offers could generate value, but each carries risk. When compared, the buy up offer carries less risk than the discounted single day offer because it drives positive revenue improvement with minimal buy up and no incremental demand, even after accounting for buy down from higher yielding tickets.

Let’s compare the two with a couple hypothetical scenarios.

The goal of the buy up offer is to pull visitors up the price curve by providing the opportunity to visit multiple days for the price of a 1-day 2-park ticket. We can assume some modest buy up from the 1-day 1-park ticket ($119) to the 1-day 2-park ticket ($164) and slight buy down from the 2 day 2-park ticket ($223). In addition, there will likely be no volume loss since the core ticket price hasn’t increased. This promotion does not require incremental sales volume to drive revenue improvement or break even, which reduces risk.

The “$30 off” offer is designed to drive incremental attendance by discounting the base single-day ticket. Because the offer discounts the base ticket, some individuals who would have paid full price are now able to pay less. We refer to this buy-down behavior as dilution. Because of the dilution in the base ticket price, a 10% increase in visitors is needed for the offer to break even. Broad offers like this can be risky, especially when park capacity is limited.

Learn more about our guiding promotion principles to help you understand whether discounting will work best to increase demand while preventing downside risk.

While these are unprecedented and trying times, now is the time rethink pricing and come out stronger on the other side.  Below are some closing recommendations for discounting in today’s world.

Keep the customer front and center.

Play your own game.

- Have confidence in your product or service.

- Lead; don’t follow

- Don’t assume your competition is right.

Develop different playbooks for specific segments or markets.

- Not all customers are created equal.

- Individual wants and needs are different.

- Plan potential promotions months in advance.

Establish a test and adjust culture and build on what works.

- Do the math to understand cost benefit.

- Measure, measure, and then measure.

Lastly, make "Pricing" a core competency in your organization.

How Can We Help?

Schedule a free consultation to discuss your business needs.

Schedule Consultation

Menu Engineering Strategies for Restaurants to Optimize Revenue

Business Optimization, Pricing and Revenue Management

The restaurant industry should be bracing for significant economic challenges in the next twelve months. During the last recession in 2009, it took more than three years for sales at restaurants to return to pre-recession levels. The dramatic drop in sales at restaurants over the last two months is now roughly ten times the total decline seen during the Great Recession.

In order to survive the upcoming economic challenges, restaurants need to implement smart pricing strategies. One of the most powerful pricing tools restaurants can implement right now is menu engineering.

For many restaurant operators, menu engineering is a familiar concept but often disregarded in practice. The concept is simple: the restaurant menu should feature the most profitable and popular items to sell more plates that earn high contribution margins.

How Restaurants Can Engineer Menus to Optimize Profit:

1. Assess the costs and popularity for each menu item
2. Optimize the menu to feature items with higher contribution margins

Let’s take a deeper look at how to implement menu engineering strategies.

1. Examine costs and popularity for each menu item.

How to Determine Costs
In order to understand the most profitable dishes on the menu, restaurant operators need to start with understanding their costs. Taking the time to examine the cost of each menu item can be tedious, but it will produce significant payoff in the months to come.

Item profitability can be looked at on a food cost basis to keep it simple. The total food cost is found by adding up the individual costs of each ingredient on a per-item basis.

Gross profit is then calculated by taking the food cost per serving and subtracting from the sales price.

Sales Price - Menu Item Food Cost = Item Gross Profit

Taking item gross profit divided by the base of sales price provides a contribution margin for each item that does not include labor and other overhead.

How to Determine Popularity
Determining the popularity of menu items may be simple for a food operator managing the business day to day. However, to identify a more reliable answer, operators can simply pull the frequency of purchases for each food item from their POS system.

To determine each menu item’s popularity, compare the sales of each menu item on a base of daily number of customers for several months to estimate the item capture. Comparing item captures across the menu gives a measure of popularity for each item.

2. Optimize the Menu

Once contribution margin and popularity have been determined for each menu item, you can categorize them based on the matrix below.

Menu Engineering Matrix

When designing the menu, feature items with higher contribution margins such as stars and puzzles, and eliminate unprofitable ones.

Dogs: Items with low profitability and low volume. Remove them from menus.

Puzzles: Items with high profitability and low volume. Feature them more prominently on the menu and encourage wait staff to push them at table service locations.

Stars: Popular items with high profit margins. Look for opportunities to take marginal price increases on most popular items.

Work Horses: Items that are popular but not particularly profitable. Move work horse items to areas of the menu that are less prominent and don’t encourage wait staff to sell them at table service locations.

By categorizing each menu item, restaurant operators can see which items are best suited for price increases, cut from the menu, or get more prominent placement. Profitable items should be featured more clearly in the menu, and unprofitable ones should be removed. Let's look at a simple example of menu engineering with a short case study.

Dan's Diner Case Study

Dan’s Diner is just scraping by after re-opening with reduced dine-in capacity and curbside takeout. Dan is looking to optimize his menu in order to increase profitability. For each entrée, he identifies the profit margin and the number of dishes sold per customer.

Here is an example of four dishes Dan categorizes using the matrix to understand where he needs to make changes. Let’s look at an entrée from each quadrant.

Menu Engineering Matrix

The Dog: Country Fried Steak
The Country Fried Steak is the least profitable entrée and hardly anyone buys it. In order to reduce food costs and leaking profitability, Dan removes this item from the menu. Assuming that Dan’s Diner brings in $45,000 in revenue each month, a 1% decrease in food costs by cutting this menu item is worth $450 per month. These cost savings can pay an employee’s week of labor at roughly $10/hr or go towards advertising to increase demand.

When menu engineering during the current coronavirus crisis, it may be necessary to remove all "Dogs" from the menu without replacement temporarily to save costs.

The Puzzle: Dan's Gyro
The Gyro has a very high contribution margin but does not sell well. In order to encourage customers to purchase the profitable entrée, a Gyro combo special is added to the menu with a savings message and featured during happy hour.

"Puzzle" items are good candidates for discounts and deals. Their low volume means purchases are more likely to be incremental and the higher margin covers some of the discount without hurting the bottom line.

The Star: Baked Chicken
The baked chicken has the highest popularity and profitability. Dan’s baked chicken is known all over town. Customers love it for the price and quality. Dan loves it for the great margin. Dan takes a $0.20 price increase on the Baked Chicken Plate, which falls straight to the bottom line.

If Dan can identify a few star items to take minimal pricing on, the value falls straight to profit.

The Work Horse: Cheeseburger
Guests love Dan’s cheeseburger and waiters often push it as their personal favorite. The problem is that the profit margins are slim. Dan tells wait staff to stop promoting the item and instead push the Baked Chicken when asked for recommendations. Beyond steering the focus to "Stars," price increases can be leveraged to turn highly popular "Work Horses" into "Stars."

Each of these menu engineering strategies improves the bottom line by eliminating costly products and increasing the sales of profitable ones. The goal is to drive higher revenue, but more importantly, higher profits.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

How Can We Help?

Schedule a free consultation to discuss your business needs.

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loyalty program to help businesses during coronavirus

How Loyalty Programs Can Help Businesses in Post-Covid Economy

Business Optimization, Marketing, Pricing and Revenue Management

by Stephen Davis, VP, Integrated Insight

Published May 12, 2020

Businesses will face monumental challenges in the coming year as a result of the coronavirus outbreak. For many, this is their first time operating in an economic crisis. Unfortunately for some, it will also be their last and only.

The United States’ economy slumped in the first quarter of 2020. The economy will likely  be in a recession through the end of the year. Over 30 million Americans have filed for unemployment benefits since the start of the coronavirus pandemic. Historic double-digit unemployment rates are expected in the months to come. Economic uncertainty is spreading, and consumers are worried about short-term job prospects and financial security.

As Americans tighten their belts, competition for wallet share will intensify. Current business strategies need to focus on customer retention and low customer acquisition costs. This can be achieved through a customer loyalty program. Loyalty programs also increase customer engagement, frequency of engagement, and spending - all of which improves the bottom line.

For businesses without a rewards program in place, now is the time for action. For those with an existing program, now is the time to fortify the use of best practices and dive into customer loyalty program insights.

Successful loyalty programs do three things:

  1. Create a relationship.
  2. Engage with customers.
  3. Reward loyalty.

To implement these three strategies, businesses need to know the loyalty member, engage them, and reward them.

 

Let’s take a deeper look at how customer loyalty programs can help businesses in the Post-COVID economy.

1. Create a relationship.

Most businesses understand the importance of customer relationships. A loyalty program can deepen the relationship and provide a direct connection to customers. The relationship starts with a strategic membership sign-up process. Here is an example.

- Dan’s Diner has five restaurants and has been hit hard by social distancing restrictions. Dan’s is popular among locals and has a solid existing customer base. However, the current climate has the restaurant owners worried about losing share to other local restaurants. They know competition for takeout is tough. Reopening at reduced capacity may not be enough to sustain the business.

To help retain customers and promote brand loyalty, Dan’s Diner implements a rewards program where members can earn points to redeem on future purchases. Members use their e-mail and provide basic information to sign-up. During the process there are a few questions that help the restaurant get to know the customer. This creates a direct line of communication to loyal customers and a tool to incent repeat visits.

2. Engage with customers.

Creating the relationship is just the first step towards a successful loyalty program. Next, companies need to engage with customers by leveraging the sign-up information to personalize messages. Consumers are bombarded with emails and notifications from businesses. In order to be engaging, companies need to personalize communication to stand out from the noise.

-  Dan’s Diner wants to find ways to announce their re-opening without spending more dollars on advertising. They decide to engage with their most loyal customers first. The diner provides tailored information to members with details on new operating hours and social distancing guidelines for their nearest location.

To engage the loyalty members further, the diner holds a contest among members with a prize. Loyalty program members who post the re-opening announcement have a chance to be the first patrons back at Dan’s. To spice it up, the winners also receive a free meal for them and three guests.

3. Reward loyalty.

The end goal of reward programs is to encourage customers to make incremental purchases. Creating incentives that reward loyalty without diluting current business requires a strategic approach.

-  Dan’s Diner has re-opened and is making ends meet but could use extra business. Their customer loyalty program has been popular, and they now have 2,000 members. Repeat customers show a high affinity for the program. Based on past purchase behavior, Dan’s finds that Tuesday through Thursday afternoons between 1 p.m. and 4 p.m. are the slowest periods that have the least amount of member purchases. Conversely, on Friday and Saturday nights the restaurant is constrained due to social distancing guidelines. On these nights, members make up the majority of customers.

Dan’s customer loyalty program is a tool the diner can use to shift member demand away from weekend nights and into weekday afternoons. In order to do this, the diner offers double reward points for members that visit from Tuesday through Thursday in the low-demand periods. On Friday and Saturday nights, Dan’s offers a free appetizer for members when purchasing a to-go or delivery order. By offering these bonus rewards to members, Dan’s Diner can free up capacity on the weekends and encourage purchases during the week.

Once businesses create customer loyalty programs, the work doesn’t stop there. Successful loyalty programs are dynamic. They continuously monitor usage and adjust reward structures to optimize behavior. Businesses that can execute effective loyalty programs will have a competitive advantage in the upcoming months of economic uncertainty.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

 

faucet is leaking with cash because company is cutting way to profitability with their revenue strategy

You Can’t Cut Your Way To Profitability – Rethink Your Revenue Strategy

Business Optimization, Pricing and Revenue Management

by Joni Newkirk, CEO, Integrated Insight

Published April 20, 2020

Some cost cutting is good, especially if it is part of an operational efficiency, continuous improvement effort. But in a downturn, many companies turn to more severe cost cuts to manage cash flows. The risk is cutting costs to the point of sacrificing total revenue and profit margin.

 

To avoid profit eroding cost cuts, consider these four steps:

  1. Know your target market.
  2. Understand your target market’s value proposition and willingness to pay.
  3. Know your variable operating costs.
  4. Calculate the impact of proposed changes, accounting for both cost savings and reduced revenue.

A recent visit to urgent care was eye opening. We visited late afternoon and I was stunned to find we just made it before closing. Previously, they were open later in the evening. My impression has always been that urgent care typically stayed open when doctors were not, as an alternative to the hospital emergency room. As it turned out, the six facilities for this particular group – all located within 20 minutes of each other – were more likely to mirror primary care practice hours than complement them:

- 2 were opened 8 am to 8 pm, seven days a week

- 2 were opened 7 am to 5 pm weekdays, and 8 am to 5 pm on weekends

- 2 were opened 7 am to 5 pm weekdays, and closed on weekends. In total, the practice is open 404 hours per week across the six locations.

Looking forward to the need for testing, treatment and vaccines for coronavirus, this urgent care group has a number of options to rethink their operating and pricing strategies to maximize profit.

1. Know your target market.

Knowing your target audience starts with understanding why they chose you versus other options. For urgent care, it may be they do not have a primary care physician. Or perhaps they couldn’t get an appointment with their regular doctor fast enough. Some want to avoid the more costly hospital emergency room. Still others have a difficult time taking off work.

At least two of those reasons speak to evening and weekend operating hours. Being open when your target market wants to do business is critical for higher profits. For this particular practice, converting just one facility to a 24/7 operation could be a strong marketing strategy.

Staggering the hours of the other facilities may also have benefit. The alternative schedule provides more coverage for just two more hours per week. Arguably, it better meets potential client needs. Two facilities are always open in the early morning, and 2 in late evening. If demand warrants more daytime hours, adjust accordingly. But first, let consumers sort where they may. Some may be forced to come during daytime, even though that is not preferred. And even others may not have considered this urgent care practice, but will now.

This is an example schedule that facilities could implement to maximize profit:

- Facility A: 24/7; never closed.

- Facility B: 5 am - 1 pm; 7 days

- Facility C: 11 am - 5 pm; 7 days[

- Facility D: 11 am - 5 pm; 7 days

- Facility E: 11 am - 5 pm; 7 days

- Facility F: 4 pm - midnight; 7 days

2. Understand the Value Proposition and Willingness to Pay

Understanding the target market’s value proposition and willingness to pay will also inform pricing strategy. Now may be the time to enter the market for Direct Primary Care (DPC) or Concierge Care. One or two facilities could be converted for a DPC practice. Or, the urgent care practice could provide direct/concierge care as a tele-medicine or at home service.

It is likely many consumers will want to be tested multiple times over the next two years. Many will be lining up for vaccines once available. DPC and Concierge Care patients pay a monthly fee for direct access to a physician, relieving stress and anxiety.

A recent article in Forbes magazine cites the pandemic “…has forced healthcare to evolve more rapidly over the last few months than it has over the past 30 years, in terms of embracing new forms of patient engagement and care delivery.”

As cited in WebMd, more patients are turning to DPC physicians for both convenience and to reduce costs associated with emergency room visits. While health care may just be catching up to other industries that recognize the value of segmenting audiences, the coronavirus wave of need may be just the one to surf into a new business model. It is possible to have both economy prices and higher priced services at the same time. The psychology of pricing is the same either way: know your customer’s value proposition.

3. Know your variable costs.

Knowing your variable operating costs will further inform net income. The urgent care facility will likely pay a premium for a nurse practitioner or physician assistant on night shift. Having physicians on call for tele-medicine visits will also come at a cost. The cost of Covid-19 tests and vaccines will be additional expenses. Accounting for all incremental costs will help inform pricing methods.

Competitive pricing is important, but covering variable costs is a necessity. What is most important is for the urgent care practice to view the business holistically. The goal is not for each facility to turn a profit on their own. Or for each DPC to be profitable on day one.

The ecosystem of “something for everyone” is meant to work in concert. There may be lost leaders and some facilities or DPC doctors will be power horses. But each has a role to play and is integral to the operation as a whole. Providing service where, when and how consumers want to engage is the end game.

4.Calculate the impact.

The final step is calculating the impact of proposed changes. What do you have to believe in terms of additional facility visits? It may not be much given the number of operating hours stayed the same. What should your penetration of the DPC or Concierge care market be? The practice could do a quick research study among consumers in the area, but there is little risk of just trying something new. If the new operating model doesn’t work, the facilities can always revert back. And the urgent care practice may be able to step their way into DPC, scaling up as popularity of the service takes off.

 

Bottom line, offering less seldom results in growth. More is better, so long as it is taken on with calculated risk. Lead with the consumer and let your strategy evolve to meet their needs.

For more information on revenue strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

coronavirus pricing strategy

Pricing Strategies To Focus On During The Coronavirus Pandemic

Business Optimization, Pricing and Revenue Management

by Joni Newkirk, CEO, Integrated Insight

In times of crisis, there is risk of making short term decisions that will have long term impacts. Severe price increases or price gouging will take on a life of their own. The negative word-of-mouth companies will receive from price gouging will have longer negative consequences than any economic impact. Conversely, deep discounts and potential price wars are not sustainable. Here are four pricing strategies to focus on during the coronavirus pandemic.

Pricing Strategies to Focus on During the Coronavirus Pandemic

1. Create strong value for customers
2. Target a specific customer base
3. Fence promotions to avoid dilution
4. Implement strong marketing messages that resonate with the consumer

Let's take a look at what these mean and tactical examples to apply them.

1. Create strong value for your customers

Create strong value for your customers by considering their wants and needs. Package your products and services accordingly. The Coronavirus is likely to change consumer behavior in some ways. They will be more cautious of their physical space and social distancing. They are likely to be more attentive to health care. And perhaps they will become more conservative in their spending as jobs are at risk. But they will also be looking for opportunities to escape the confines of their homes. Consider promotions that avoid discounting your core product. Instead, add value by increasing the amount of product or service the consumer receives for that price. Here are some examples.

- Bubba’s Sports Bar is open for take-out only for the next several weeks. But they also want to make sure customers will feel comfortable coming back this summer. Bubba decides to extend an offer to anyone ordering take-out during “stay at home” days. Once the restaurant re-opens, they can get one half-price, table service meal inside. The intent is to keep customers coming in for take-out now. But also give them an incentive to dine out later.

- Vacation Away Travel Agency has seen its business decline due to travel restrictions. In addition, people are asked to stay at home. But even some who haven’t used a travel agency previously will see value in doing so. Just the fear of being stranded is enough incentive. Vacation Away decides to package products and services into a promotional offer. It includes free travel insurance, concierge service for emergencies, and a travel medical supply kit.

2. Target a specific customer base

Business owners can stimulate just enough demand by targeting a specific customer base. They avoid the risk of giving up unnecessary profit. Targeting offers to specific audiences also allows for customization. You can potentially reward your most valued customers.

- Bubba decides to target his bounce back offer to neighborhoods farther away from the Sports Bar. Intentionally, these are not necessarily the customers using take-out today. This should lead to incremental take-out sales as well as a future visit.

- Vacation Away wants to limit exposure should they actually have to evacuate someone. They decide to offer the package only to clients booking trips to Europe and Scandinavia.

3. Fence promotions to avoid dilution

Fences make good neighbors. They make for good offers too. Fencing applies to rules and procedures that keep the offer valid only for the intended audience.  Determine how to fence the offer in advance. Fences can be hard, whereby the consumer needs to prove they are eligible. Or they can be soft, where only the intended audience is likely to respond.

-  Bubba doesn’t need to stimulate table service dining during weekends. Plenty of televised sports bring in customers. He also believes it will only take a couple of months for people to feel comfortable dining out. He decides to put a time limit on the offer, good for Monday through Friday only. He also limits it to just June and July.

- Vacation Away feels good about its offer, but worries about the cost of large parties. They decide to limit the offer to travel parties of eight or less to avoid large, multi-generational groups.

4. Pull consumers into desired behavior

Marketing will ensure promotions drive incremental demand and revenue. They must reach the consumer in advance of their decision making. Savings or value messages need to be clear and concise, and consumers shouldn’t have to do the math.  “Save 5%” is seldom motivating even if that is all you need to do. “Save 30%” is more compelling than “Save 29%”.  “$10 off” is meaningless unless the consumer knows the original price of an item. “Buy two of X and get Y free” only works if Y is something they value.

- Bubba’s half-price table service meal is a strong offer. Consumers can easily see the value. The restriction of Monday through Friday is a bit limiting, but worth it to avoid dilution.

- Vacation Away should consider showing the actual savings the offer provides. They could also market the intangible benefit of peace of mind.

Regardless of what industry you are in, remember to always lead with the consumer. Once you understand what is in their hearts and minds, great pricing strategies will follow.

How Can We Help?

Schedule a free consultation to discuss your business needs.

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Read More

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Read More

How to Communicate Pricing

Business Optimization, Pricing and Revenue Management

After you have researched and created a strategy, how are you supposed to communicate pricing to consumers? A well-designed pricing strategy will provide inherent levers to help move consumers along the continuum of products and services available for sale. Pricing communication strategies are essential to gaining incremental demand.

To ensure successful implementation, pricing communication needs to be clear, consistent, and compelling. This article will explain how to communicate pricing to consumers for optimal results.

Establish Clear Communication

Regardless of how or where consumers engage, what they will receive for the price they pay must be transparent. If a product doesn’t include a feature or benefit the consumer expected, they will be disappointed and perhaps lose trust. Are the batteries included? Does a charger have to be purchased separately? Does my telecommunication plan include international calls and data? On the flip side, if the product or service contains features that are not apparent, you are at risk of losing a potential sale or leaving value on the table. Do your guests know breakfast is included with the price of the room? Is it clear – before getting to check-out – that your products ship for free?

Research has shown that brands that score high on the “decision simplicity index”, which measures how well the brand aids navigation, builds trust, and makes it easier to weigh options, have a higher likelihood of purchase. Prices need to be readily apparent, whether purchased instore, online, on a mobile device, or by phone. The price of a product is an important factor considered when evaluating a purchase, and consumers are generally both time and patience constrained. On physical products, having prices large enough to read and not obscured by other information is critical. The description on the shelf needs to match what is on the item.

Too often, bar codes or abbreviated key codes appear on shelf prices. While it may be the number of record for internal inventory control, that information may be frustrating for the customer to decipher and figure out.

 

Focus on E-commerce Communication

On the web, regardless of the product or service being sold, reducing the number of clicks to reach pricing information is paramount. If selling products or services that can be customized by the purchaser, make the path to purchase simple and intuitive. Pricing grids, where all the options can be laid out side by side, with clear indication of differences and benefits among various products and services, work well for many categories. Not only does it do the legwork for the consumer, but most pricing grids can be reached on a website in just two or three clicks, a critical factor for time-starved consumers.

When communicating pricing information, be sure to simplify. State what is critical to know, but steer clear of overwhelming consumers with every minute detail. Speak in the consumer’s language.

 

Communicate Consistently

In an omni-channel environment where consumers can engage through mobile, online, or brick and mortar – all in the process of purchasing one product – it is non-negotiable that communications regarding price are consistent. This is not to say that the actual price needs to be the same in all channels, just the message around why the price is what it is. For example, many attractions sell tickets online at a reduced price to secure commitment. This is not only acceptable, but a great practice in competitive markets. What is important is that consumers know the real price as well as the reduced price for purchasing online or via mobile.

Often times in an effort to update all channels when price changes are made, we forget one of our most valuable resources: our employees. The team directly responsible for selling either by phone or in-person is often the last to know of price changes. Not only do they need to be informed, but they need the right message points as well, which brings us to the importance of “marketing” the pricing. We learned this when implementing Walt Disney World's "Magic Your Way" pricing strategy. 

Make Sure the Message is Compelling

Your products and services have a story and that begins to bear tangible fruit when it comes to pricing power. When communicating your pricing, ensure the story is not lost in translation. Rather, lead with the story. TOMS shoes (or eyeglasses) takes a bold and heart-wrenching approach with the One for One promise. For every pair of shoes purchased, TOMS donates a pair of shoes to a needy child. Powerful. It makes you feel good about your purchase, even though you may find the same shoes for a lesser price elsewhere. Or consider Chick-fil-A.

Small soft drinks or soda run about $1.35 while lemonade is 20 cents higher. Why? Because it is fresh-squeezed lemonade and Chick-fil-A makes sure you know that. Or RedHead socks. They come with a lifetime guarantee. If your socks ever wear out, they are replaced for free and RedHead knows that’s an unusual promise for socks. Still not a convert on the power of story? Check out Rob Walker’s anthropological experiment on the SignificantObjects website.

Compelling value messages are real. When shopping for cookware on the Williams-Sonoma website, I ran across a cookware set from Calphalon – a 10-inch fry pan and 3-quart saucepan. The “suggested” price (completely meaningless without reference on where the suggestion originated) was $375.00 while “Our price” was $99.95. What would have been much more useful – and compelling – was the true “savings” I had to discover on my own. The fry pan standalone was $89.95 and the same saucepan if purchased separately was $99.95.Williams-Sonoma failed to grab my attention with “Buy a three quart saucepan and get a 10-inch frypan for free” or “Save over 45% with the purchase of both a fry pan and saucepan.”

The Takeaway

Communicate your prices in a clear, consistent, and compelling way. Consumers are time-starved and overwhelmed with options. The more you can do to facilitate the path to purchase, the better.

 

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

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