Drip pricing: Does it do more harm?

Home Column Drip pricing: Does it do more harm?

transparency pricingIn many retail businesses (flooring included), there are generally two schools of thought when it comes to advertising prices for goods and services: either you provide the customer with a single, all-inclusive price that includes products/parts and labor; or you deliver a more detailed, itemized quote that lists each individual item separately so the consumer knows exactly what she’s paying for. In theory, it would stand to reason that most customers would appreciate knowing how their hard-earned dollars are spent. But the fact of the matter is, however, many times consumers actually punish sellers for transparency.

This topic was the focal point of a recent Wall Street Journal article I came across that delved into the psychology behind so-called “drip pricing,” a term popularized by a 2012 Federal Trade Commission conference. In the article, “Hidden Fees Exist Because They Work,” drip pricing refers to a method whereby consumers are drawn in by a low advertised price but then are hit with all sorts of additional fees in the course of executing the transaction. (Note: This is not to be confused with “bait & switch” techniques, which is a whole different subject for another day.)

Sellers who practice drip pricing, the WSJ article concluded, don’t necessarily turn off customers. On the contrary, drip pricing actually boosted revenues in some cases. One such case referenced in the article involved StubHub—the popular events ticket reseller website that in 2015 abandoned its “all-in” pricing strategy in favor of a drip pricing strategy. The latter approach boosted revenues by 20%.

All this got me thinking…where do floor covering retailers stand on this issue? Just out of curiosity, we reached out to a handful of dealers to get their thoughts.

Jerry Levinson, a former floor covering retailer who now operates a full-time retail consultancy, encourages his clients to look long and hard about the way they approach pricing. “Retailers should consider going from a line-item quote to one price to make it easier for your customers to make a buying decision,” he said. “I know—some people say, ‘But my customers prefer a line-item quote. They like transparency.’ Yes, the customers you sell like the way you do things. However, if your closing rate is below 40%, then you really need to consider changing how you give an estimate.”

Dave Murley, president and CEO of Murley’s Floor Covering & Abbey Design Center, Kennewick, Wash., is of the mindset that customers are willing to pay more for products and services—providing there’s an upside to the cost/benefit analysis. “We don’t focus on price; we focus on value and building relationships,” he told me. “Our goal is to get in their home, determine their needs, find the right product and quote the complete job. If price comes up, we deflect it and get more details about their project. If price is the sole question, we then look at the details and what the customer is comparing.”

So, should you give your customers one all-in price or a provide complete disclosure with all the add-ons? At the end of the day, it boils down to what strategy works best in your local market versus any adjustments you feel you need to take to close more sales.

Lisbeth Calandrino has been promoting retail strategies for the last 20 years. To have her speak at your business or to schedule a consultation, contact her at lcalandrino@nycap.rr.com.

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