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Pricing Strategies to Increase Response for Your Insert Offer By Larry H Tucker When you’re planning to test various offers for use in a package insert, statement stuffer, or an insert in a cooperative mailing, pricing strategy is an important factor. Whether you’re selling a $99 figurine or a $3.98 continuity item, the audience receiving the insert must perceive your pricing as a “bargain.” If the normal perceived retail value of a category of products is relatively high (yet product cost is relatively inexpensive); you have a lot of room to maneuver. With products like perfume, beauty cream, jewelry, or decorative items, it’s easy to give liberal partial-payment terms, extra bonuses, free samples, half-off prices, or “bill me later” options. We’ll look at each of these options in just a moment. Books, periodicals and tapes represent a different challenge. Profit on the initial order may not be that great; as a matter of fact, the majority of companies in these fields expect to “buy” a new customer by losing money at the outset. Their overall, long-term profitability is dependent on generating multiple shipments to a paying customer (or a continuing, paid subscription) extending over a number of months or years. With profitability spread out over time, a company with continuity programs can make compelling offers like “6 tapes for only 1 ~“ or “3 Books for 3 Bucks—No Commitment—No Kidding!” In periodical publishing, where the need to maintain a substantial number of readers or a “rate base” for advertisers is a very important consideration, circulation directors may use a whole bag of tricks to bring in the initial orders. Requesting cash-with-order has become rare, and “Examine your first issue FREE at our risk” has become the benchmark offer. Even this liberal policy may not be tempting enough to draw the large number of responses that are needed, and premiums or special pricing and terms may be combined with this “no risk” offer. Selling merchandise with minimum risk For items like clothing, gifts, and knick-knacks, the aim of companies seeking catalog buyers or long-term customers is generally to “break-even” on the first order, so that the cost of bringing in the new customer can be liquidated by the gross profit on the item sold. The other basic approach offers a free catalog or even charges a nominal amount for the catalog (taking that or a larger sum off the first merchandise purchase). Obviously, in programs dedicated to increasing catalog circulation, the total costs to the vendor of the entire operation (soliciting the order for the catalog, data entry, printing and mailing the catalog, and direct mail or telephone follow-up) must be factored into the break-even figure for the first actual order, or, more commonly, the lifetime value of the newly acquired customer. More complex “two-step” marketing will be dealt with later in this series. In general, bringing in qualified leads is a sound business practice when the ultimate sale is complex or involves a big-ticket or long-term commitment. For low-ticket or impulse items, insert programs can generate orders profitably if the right price point can be found. Sufficient response must obviously be generated to make this pay out, and this is one area where pricing and offer are critical. Inserts can do a thorough, cost-effective job in each of these categories, bringing in hundreds of thousands of purchases (or millions of inquiries, sample requests, or catalog orders). Determining the right price point and pricing policy depends largely on your goal: to break even, make a profit, or “buy” a new customer at an acceptable price. Higher profit margin allows higher risk Many items successfully marketed by mail are manufactured or obtained at a fraction of their normal selling price. Particularly for trendy, style-oriented, or high-tech items, or “collectibles,” pricing may be “blind”—that is, the consumer has very little reference against which to judge it. Mark-ups of 200%, 300% or more are not uncommon in these cases. And even in the field of books and audio or videotapes, the incremental manufacturing cost is only a small portion of the price asked. In these cases, the marketer can take more risk up front in formulating tactics to bring in the initial order. “Send No Money Now: Examine in Your Own Home for 10 Days at Our Risk” is a financially sound offer for these marketers because it takes into account the substantial no-payments and the returned merchandise that will probably ensue. The added initial response gleaned from the majority who will pay (and stay), coupled with the substantial built-in profit margin, makes this type of offer profitable. Spread out the payment schedule Of course, many marketers now allow consumers to bill their payments made by credit card in several installments. “Only $9.95 a Month for four months” may be a lot easier to swallow than a flat “$39.80” as a price point. Some larger marketers even offer their own credit payment systems to holders of VISA, Master Card, or Discover Cards. You can keep your pricing in the bargain range by breaking up the billed payments into two or three parts—a two-step program with billing for the first installment going out after the initial “send no money” order is received by the vendor, and beforeshipment of the product. The first payment can completely cover the cost of product and shipping. Those who pay the remaining one or two invoices amortize the media costs and provide the profit margin. Satisfied customers will often respond to bounce-back advertising or subsequent solicitations as they pay the installments, and they provide a substantial profit bonus! And each billing cycle provides you with an opportunity to sell other items or add-ons. | |||||
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