This incredible interview was shot when I visited Thom Winninger, the author of Price Wars: A Strategy Guide to Winning the Battle for the Customer. If you struggle with how to price your product or service so it sells like crazy, then you must watch this video!
MARC WAYSHAK: Hello and welcome my name is Marc Wayshak I’m America’s sales coach on Game Plan selling and today I have a real treat for you, I’m here with Thom Winninger, who’s author of the book ‘Price Wars.’ It’s amazing because I have clients that are coming up to me all the time, I mean we talk about the ‘2X Formula,’ which focuses on how to raise revenues by increasing the number of customers, increasing the average transaction size and then the frequency of purchase, but the one that people really struggle with is how to sell at a higher price, people struggle with that all the time and they tend to be dropping their prices just to make the sale, so what’s your advice for that?
THOM WINNINGER: Well look it really is a concept and it’s called a single price quote, typically we fall into the trap of there’s a competitive price and there’s our price, and we give one price, so we’re heads on trying to compare pricing for pricing, I suggest you do a multi-level quote, so in other words if your prices are $3.95, $4.95 and $5.95, so you’re not single priced quoting to the market place, and then the beauty of that is, I call it vertical merchandising, you’re adding a little bit more at each one of those price levels which diffuses the ultimate comparison between you and somebody else, that’s the challenge we all have, the challenge that the customer wants to compare, and they’re not going to compare on value – it’s just too hard, and they’re not even going to compare on accessories because most of us whether it’s a service or a product add so much the customer doesn’t need that it becomes unimportant, in software does so many things, and you’re going ‘well I don’t need all that, but it’s $4.95’, no it’s $3.95, $4.95 and $5.95, each one has a little more value in its accessory package or in its service package, now what do you want? We call that the multiple of 3, so it’s you, you and you, not single quote price you, single quote price somebody else, and I’ve been analysing this for over 30 years, and it has worked in every environment I’ve been involved in, and you can even take the same product and accessorise it, like I can take a software program and add on some online coaching to it, add on some bells and whistles, raise the price, then add on a little bit more and say well which one do you want? Do you want the basic package, do you want the ultra-package or do you want the premium package? All of a sudden this price-competition paradigm dissolves, it dissolves in the process.
MARC WAYSHAK: Fascinating, now you had mentioned – we talked about this yesterday, really a great conversation, let’s say I have a client who sells high end kitchen cabinets, real high end stuff, and let’s say he walks into someone’s home and he has a conversation and in his head he’s thinking ‘ok this is really about a $30,000 project’, somewhere in there, now you said to have 3 prices, but if his goal is to sell let’s say $30,000 project, does he then come up with a $25,000 and a $35,000 and expect them to go into the middle or does he start at 30, and then have 35 and 40.
THOM WINNINGER: The price point should be the low price point, in other words you always go up from what the true value package is, you never go above and below, because then your averages are going down, and again the challenge I have with most guys like that in the kitchen design cabinet custom build business whatever they’re in is that they go in and they sell the design rather than what I can do with the design, so in other words they’re going to do a single design, well no problem with that, I don’t want to do 3 or 4 designs, I want to do a single design and then I want to give levels of cabinet doors, levels of hardware, different kinds of pull-outs to raise that price level, so that the customer sees that there’s things for different prices that raise or lower the pricing point value of the product line, it’s the same in landscaping, landscape architects have come to me and say ‘well you know I did the plan and I did the quote on the plan and I put in so many spirals and so many balls and all this stuff and how do I lower the price?’, I say ‘you don’t need to take out or put in but sizes are different prices’, so you could do a size price quote comparison between 3 sizes of installed product, but don’t change the design, because then they think they’re getting less – it’s not good, better, best, there’s no good, better, best in my pricing formula.
MARC WAYSHAK: You know what’s so brilliant about this, is obviously you’re going to win more sales in general because like you said you’re no longer competing against other people, because you have all these prices, that’s one piece but the other is that I see sales people all the time – and we’ve all been guilty of this, you go in, you meet with someone and in your head you say, let’s say this is a $50,000 project in your head then you say you know what would be this person’s budget, but then really let’s say you threw out the price of $50,000 and they say ‘oh ok, that’s it?’, and you’re leaving money on the table and really potential value because let’s face it, the higher end project – if what they really wanted was the $75,000 project which had all the bells and whistles, you’re actually doing them a disservice and you left a lot of money on the table.
THOM WINNINGER: Exactly, that is also one of the benefits of the vertically merchandised 3 points of pricing strategy with customers and this has been studied over hundreds of years, I mean the whole rule is 3 never more than 4, and never 2, there is something about the magic of the third choice because the serious shopper typically will check 3 places, that’s why we hang into that 3, but you’re exactly right, you’re exactly right – we undersell, we don’t package high enough and the other thing to me is that the package prices between you know 25, 30 and 35 I probably wouldn’t even price that way, I’d go if you’re going to up, I’d go 30, 35, 42, you see what I’m saying? So you stretch the upper package farther away from the middle package and again I’m not trying to manipulate here, the idea is I want to give them a choice, I want to give them a value at a choice and I want to educate them with the choices, that’s a great way to educate them, what people do is they accessorise to educate, so for example we take the kitchen package and we say ‘well I can add this, and I can add this, and stop me when I get there’, no, people want choices, not variety, not add-ons, you’re going to lose them in add-ons, because every time you add something on they see you as increasing the price rather than included in the quote at this price include more in the quote at this price and include more in the quote at this price, on the same basic design, bam!
MARC WAYSHAK: We don’t have much time but I do want to point out that so often my clients or anyone that we meet when they can go increase in sales or increase in revenues the first thing they think about is getting more customers, but the beauty of this is that when you increase the average transaction size the profitability of what you’re selling and of your organisation can you know, increasing the transaction size by 10%, can lead to doubling your bottom line, and that is so powerful, and that’s why I’m so excited that you were here to talk about this –
THOM WINNINGER: And it is the bottom line, if you take each one of your choices, your vertical choices, let’s say it’s A, and that’s 30 and B is 35 and C is 45 and you work the net margins on those, it’s amazing isn’t it, it’s huge, because the accessories have more margin in them in most cases, the little add on bells and whistles, the little buttons, the little draws that come out the little drop ins there’s much more margin in those items.
MARC WAYSHAK: Big time, and for added more value. Well Tom, thank you so much, this was amazing. Thank you so much.