Getting customers to open their wallets, and pay for products, requires a lot of work. If you think otherwise, you will be making a big mistake. Yes, consumers are smart. Daily, they have to deal with opportunity costs in a world where they have limited resources to meet their largely unlimited needs.
Yet, there are many ways of getting customers to open their wallets and buy from you. Over the years, I have noticed one technique that works. I call it the Car Salesman Pricing Strategy. Most car salespeople in the U.S. do not give a price as a whole amount when you visit dealers for car shopping. Rather, they give you the price based on your estimated monthly payment installment amount, for cars, that will be financed. They do not want you to be thinking of committing to a huge amount with all the associated burdens of paying back. The monthly payment is very manageable, in your brain.
This Car Salesman Pricing Strategy is not new. It has been part of the retail industry especially where the companies offer financing. You want to offer the pricing in ways that customers get to sign the papers as quickly as possible. Apple deploys that as it works to obfuscate the very fact that its iPhone smartphones are expensive.
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What is your pricing strategy? How do you price? Does pricing bring competitive advantage in your business? To capture and validate the hypothesis of starting that business, innovate on your pricing model.
Let us say you want to buy a car that costs $24,000 to be financed at 0% for 6 years. A good salesman will give you the price, usually in a written pad, as $333 per month, instead of $24,000. That $333 is more manageable than $24,000 even though the price is largely the same at 0% financing. That you can get 0% means that you have a good credit and the system is rewarding you for that. The product actually costs lesser when you factor inflation over time. But the reality is that you have a product of $333 and not necessarily $24,000 as you will be dealing with paying only $333 every month. You think of your paycheck to see if it can accommodate additional $333 monthly.
Of course, it is all about reality as positions shift. I will take a case study of Instacart which has been re-priced: “Instacart targeted a valuation of up to $9.3 billion in its initial public offering Monday. The grocery delivery company, which kicked off its IPO roadshow this week, was valued as high as $39 billion during a 2021 funding round, as the pandemic boosted demand for contactless deliveries. But deliveries have since flattened, prompting Instacart to cut its internal valuation to as low as $10 billion. Analysts are watching Instacart’s performance for signs of what may be ahead: Interest rates and geopolitical instability stemming from the war in Ukraine have quieted IPO markets these past two years.”
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