PSU Insight

The Importance of "Running the Numbers"

What About Your Customers?

So far, you’ve been looking at the transactions from your (the seller’s) point of view. What about your customers? What do they think?

To start with, what do your customers think when they see a “half price” offer? Of course, every customer is different, but it’s possible to make some generalizations.

Think about your own reactions. When you go into a large bookstore and you see a shelf of books at “50% off”, what do you think? You can usually safely assume that these are books whose sales have fallen off (or whose sales have never materialized at all). In short, nobody wants them, so they’re marked down.

Now ask yourself, “is that the perception that I want people to have of my products?”

Compare that to the reaction people have to a “twofer.” The first CD isn’t marked down at all — it’s the same price it always was. And the second CD isn’t marked down either. It’s free! It’s a gift. (And people love free stuff.)

Although mathematically both are 50%-off offers, your customers tend to perceive them differently. Quite often, your customers regard a “twofer” as a bargain, yet when they’re presented with a half-price offer, they tend to ask “what’s wrong with the product?”

However, that’s not true of a “buy one, get two free” offer. It’s not just perceived differently by your customers, it is different!

Remember? You make a $4 profit on a “three-fer”, compared to a $3 profit on a half-off sale. So you make more money on the sale. Yet the customer is getting $30 worth of CDs for only $10, so the customer is saving 67% (compared to a 50% savings on a half-off sale).

So it may seem hard to believe, but….

You not only make more money per sale on a three-for-one transaction than on a half-price sale, but the customer saves more money on a three-for-one sale than on a half-price sale. And you reduce your inventory three times faster!

It’s the proverbial win – win – win situation!

Does this mean that you should always use a three-for-one offer instead of a half-price offer? Not at all! Every situation is different, and so it’s important that you (you guessed it)… run the numbers. Your numbers!

In your particular situation, calculate the unit cost of your product(s) — you’ll explore how to do that in another PSU session — and perform your own half-off and “twofer” calculations.

When you run the numbers, you just might be surprised at the answers you get. And every time you discover that the “obvious” answer is wrong, you’ve saved yourself some money! Or made yourself more money! Or made your customers very happy!

And who could ask for more than that?