Unlock More Profit: 10 Expert Pricing Tips for Using Add-ons
Pricing Pointers, Issue #4
Add-ons are supplementary products or services buyers can add to their initial purchase. They are a powerful way to increase customer satisfaction and your profits.
Here are 10 tips for making that happen.
Tip 1 - Identify which purchases drive which purchases
Some products or services lead buyers to purchase other products or services.
Often this relationship is one-way. E.g., the purchase of a mobile phone leads to the purchase of a phone case, but not vice versa.
Knowing the causal order helps you do two things: (1) Identify which product should be your base product, and (2) Set the prices of your add-on products relative to the base product.
Tip 2 - Offer a moderately priced base product
A good candidate for a base product is a no-frills product. It includes only the features and functions pretty much every buyer wants.
This lets you keep the price of the base product relatively low and attract a wider range of buyers.
The no-frills base product will satisfy price-sensitive buyers.
And your add-ons will appeal to buyers willing to spend more to enjoy a better experience or results.
Tip 3 - Capitalize on the lower price sensitivity for add-on purchases
Buyers tend to make a psychological shift after they have decided to purchase the base product.
They don’t scrutinize and compare the price of supplementary items the same way.
This is the ideal time to educate them on how they can profit from upgrading their purchase.
Tip 4 - Focus on add-ons that provide genuine value
Providing genuine value is the key to increased sales and profits with add-ons.
Each buyer decides what makes up genuine value.
But, in all cases, it means enjoying a better experience or results with the base product.
Find out what the buyer wants to achieve with the base product.
Show them how they can get more of what they want with one of your add-ons.
Tip 5 - Price add-ons at a higher margin
With an add-on strategy you're sacrificing profit on your base product to make-up it up on your add-on sales.
The genuine value delivered by your add-ons makes higher profit margins possible.
There's a segment of buyers who are willing to pay more for a better experience or result.
Value-enhancing add-ons are how you find them.
Pricing is how you capture a share of the value you create for them.
Tip 6 - Price add-ons relatively lower than the base product
Buyers who've decided to buy the base product tend to be less price-sensitive when it comes to add-ons.
But, that doesn't mean price no longer matters!
Keeping add-on prices low – compared to the base product – encourages their purchase.
The buyer should feel the amount they are spending on add-ons is small compared to the price of the base product.
Tip 7 - Offer add-ons after the first “yes.”
Offering add-ons after the initial purchase decision is a terrific time to increase your sales and profits.
Customers are already in a buying mindset and less focused on the price.
It doesn't matter if only a small portion of buyers opt for your add-ons. The higher profit margins on these items can still make a big difference to your bottom line.
Tip 8 - Think about related products or services buyers will want in the future
The opportunity to offer your customers add-ons can go well into the future.
Look for add-on opportunities that occur after the initial transaction.
What tasks will buyers want to perform after using your base product?
What products and services will benefit your customers in the future?
Tip 9 - Consider underpricing the base product
This tactic works best when you can be confident about how much a typical buyer will spend with you in the future.
The more a customer will spend with you over time, the greater their value to your business.
The greater their value, the more you can afford to sacrifice to start a relationship with them.
Consider pricing your base product aggressively compared to your cost.
Make it easy for buyers to say "yes" to that initial purchase.
Tip 10 - Unbundling is a way to find add-on opportunities
Unbundling is the act of breaking apart an existing product into standalone components. These components are then priced and sold individually.
Start by separating the things every buyer wants from the things only some buyers will want.
Turn the things every buyer wants into your base product. It allows price-sensitive buyers to purchase just what they need at a lower price.
Make the things only some buyers want your add-on products. These let buyers spend more money to tailor their purchase to their wants.