1 Jan 09

Perceived Value Is Reality – Incentives That Work

Perceived Value Is Reality – Incentives That Work

Happy New Year!

I am including a new article, “Perceived Value Is Reality”, sent
to me By my Broker that explains why our Gas & Grocery incentives
are something EVERY BUSINESS needs to understand during these very
tough economic times.

I am sending this to all subscribers on the Gas & Grocery Program.
I wanted to wish you a very Happy New Year and hope that
your Holiday Season has been a wonderful one. I know mine has been.

Perceived Value Is Reality
By Jason Lee Miller – Mon, 12/29/2008 – 12:26pm

Why incentives close sales and cash is trash

Closing the sale is a delicate and at times unpredictable process.
Consumers have varying reasons to reject or accept an offer and
often some incentive is necessary. But what kind of incentive is most
effective and brings the most return for the retailer? A discount?
A gift? Free shipping?

The impact and value of the word “free” shouldn’t be overlooked, but
neither should the cost of offering something for free. Especially,
though, retailers should consider what market researchers are
calling the “perceived value differential” or PVD for short.

On the consumer side, it’s pretty simple math and the goal is
straightforward: get the absolute most for my hard-earned money.
It’s far more complicated for the seller, who must develop a moneymaking
strategy via profits and loss equations or cease to do business at all.

Marketing researcher Dr. Flint McGlaughlin labels the cash discount
as the worst incentive one can offer. That’s a general statement,
and likely one not applicable to all situations, but it makes sense
on a few levels. Offering $10 off is a straight cash loss to the
retailer, and leaves that $10 out in the Wild West of commerce.
Better incentives would include a $10 gift card, where a customer
might spend more than that amount on a second purchase at the
retailer’s store, not another place.

Perceived Value Is Reality

For online purchases, it doesn’t take long for a consumer to weigh
a cash discount against the cost of shipping. It the shipping cost
is more than the discount, then the discount could mean very little.
Free shipping, by the way, has been cited repeatedly as the most
sought-after incentive by customers. It only works for the retailer,
though, if shipping costs can be worked into the overall pricing
scheme. It may only cost $4 to ship an item, or $20.

An important distinction there is the perceived value of shipping the
item. In all likelihood, the consumer is unaware of the actual cost
of shipping without knowing the weight, distance, courier, or bulk
shipping arrangements. But it is possible (even likely) the customer
perceives the cost of shipping is higher than a cash discount
offered elsewhere.

Let’s be honest about the ease of comparison-shopping online, while
we’re at it. The retailer’s goal is to bring the total cost of the
item down below what competitors offer. Perhaps your biggest
competitor offers the same product you do at $40, plus $10 shipping.
Perhaps that same competitor inflates shipping costs to make up for
a steeper, heavily promoted discount. If you could bring that total
cost somehow to $45, even if it means $45 price and free shipping,
you win.

Another incentive that carries perceived value is a free gift. The
MarketingExperiments.com study looked at offering a half-pound of
gourmet coffee with purchase versus a free steel thermos. There is
very little difference in the cost of the two items ($2 vs. $3),
but because the perceived value of the thermos ($15) is twice that
of the coffee($8), the PVD of the thermos ($12) brings back a higher
return on incentive(ROI).

We play this game in other economies as well. This very
recently-passed holiday season, recipients of a $25 restaurant
gift certificate needn’t know the giver paid only $2 for it during
a last-minute online promotion.

The recipient gets perceived (and real) value and gives the giver
much (perhaps disproportionate) thanks.

- – - – - – - – -
If you could give away gas and groceries would that increase the
number of subscribers, customers or sales you’d get?

Visit http://incentivesgroceryandgas.com

Contact me from the site and I will show you how!

Michael Goulet – Team Leader
Direct Strategies, Inc. – “The Incentive Pros!”
http://incentivebasedpromotions.com/ (Product Site)
http://fundraisingandincentives.com/ (Non-Profit Certificates)
http://fundraisingandtravel.com/ (Non-Profit TravelBook)
w-612-377-5262
Fax-480-304-9095
michaelg@freegrocerycenters.com