Aligning Price With Value: More Sales & Greater Profit

The key to better pricing is better aligning the price charged for a product to the value the customer places on that product. We're already halfway there.

Aligning Price With Value: More Sales & Greater Profit

If a customer places a value of $50 on your product there is no point offering it to them at $75 – they'll never buy it. If on the other hand the place a value of $75 on the product you leave $25 on the table if you continue to price it at $50. The key to more sales and greater overall profit is understanding the value the customer places on the product and aligning prices accordingly.

Retail floral is already really good at half of this, at least two times each year. This is why flowers are more expensive at Mother's Day and Valentine's Day – consumers place a higher value on the product at these times and pay higher prices as a result.

Some florists might say wait... those price increases simply reflect the higher prices charged by wholesalers at those times of year. Fair enough, but wholesalers are able to charge higher prices at those times of year because you place a higher value on the product because your customers place a higher value on the product. Prices go up because everyone in the chain is prepared to pay more.

Other florists would say it's just supply and demand, but flowers aren't absolutely essential. They're not like food or fuel. They are, for the most part, a discretionary purchase. Less supply in August doesn't mean people would suddenly be prepared to pay a lot more

The floral industry is already really good at responding when customers place a higher value on flowers. We're not as good at responding when they place a lower value on flowers.

It is at these times retail floral should respond with careful, selective discounting. For example – when a customer is already paying for a dozen roses it makes good sense to discount the second dozen. This offsets the diminishing marginal utility of flowers, correctly aligns the price with the lower value the customer places on the additional roses, and (hopefully) causes them to change their behavior and buy more flowers.

It also makes sense to discount to someone at times when they place a lower value on flowers. In North America we know that the typical flower buyer will consider buying flowers on Mother's Day, Valentine's Day, birthdays and anniversaries. The rest of the year? Most North American men wouldn't even consider it.

Let's say it is the middle of the summer. Flowers are cheap at the wholesaler. Valentine's Day and Mother's Day are six and nine months away respectively. If your POS system lets you see that a customer is not likely to purchase again (based on their ordering history) for another couple of months... this is the perfect time to discount.

Why? The customer is currently placing a low value on your product, and they are unlikely to buy at your standard prices. Discounting (and at a time of year when lower wholesale prices give you a little more room to play with) better aligns your pricing with the value they place on your product. Hopefully this results in a profitable sale you would not make at your standard prices. It's not the kind of high-margin sale one hopes to make at Valentine's Day or Mother's Day, or on a birthday or anniversary, but a still-profitable sale that would not have happened otherwise.

Value-Based Pricing