Time or Money? How to Make Inconvenience Work for You and Your Customers
Pricing Pointers, Issue #47
Pricing strategy is often the most powerful lever a business has to drive greater sales and profits. However, many businesses struggle to lower prices for budget-conscious customers without simultaneously eroding the margins they earn from their most loyal customers. One way to solve this dilemma is through effort-based discounting, a tactic that requires buyers to “earn” a lower price by taking a specific inconvenient action.
In this issue of Pricing Pointers, I’ve gathered several of my past LinkedIn posts (similar to Substack notes) that explore this idea from different angles.
1️⃣ A simple trick to attract price-sensitive buyers without cutting your prices for everyone
Effort-based discounts (e.g., coupons, rebates, waiting) are a form of differential pricing where buyers sort themselves by their willingness to invest time and effort to get a lower price.
This pricing tactic works because those who place a lower value on their time are typically more price-sensitive. For them, the inconvenience (e.g., clipping coupons, mailing forms, or waiting in line) is a worthwhile investment for a reduced price.
It minimizes “cannibalization” by ensuring that less price-sensitive customers, who highly value their time, are unlikely to bother with the effort. This allows you to maintain full-price sales for that segment.
2️⃣ The secret to distinguishing faux bargain hunters from the real ones
The trick is to use a tactic called an effort-based price discount. By requiring some non-monetary cost (time and effort) you filter your buyers by how price sensitive they really are.
Real bargain hunters will accept some inconvenience to pay a lower price. “Faux” bargain hunters will gladly pay full price just to skip the hassle.
For example, a retailer might promise to refund the price difference if a customer is able to find a lower price elsewhere for the same identical item. True bargain hunters will spend their time monitoring the prices of rival sellers. Faux bargain hunters will accept the price must be pretty good, or else the seller wouldn’t make their promise. Hence, there’s no need for them to look any further for a lower price.
The guiding principle is this: The best price discounts aren’t given; they’re earned by something the buyer does.
3️⃣ Your customers value time and money differently
You can use that to your mutual advantage. Segment buyers by what they are willing to sacrifice: time or money.
Some people are time-rich but money-poor. They will gladly wait in line or fill out a rebate form for a discount. Others are the opposite: time-poor but money-rich. They will pay extra just to avoid inconvenience.
The key is creating a deliberate trade-off between the price a buyer pays and the hassle they must endure. This lets the first group save money and the second group save time, capturing maximum value from both.
The Bottom Line
By adding a small amount of extra work to the buying process, you cause customers to sort themselves by how price sensitive they really are. And you protect the perceived value of your offering while capturing revenue that would otherwise be lost to your competitors.