If I buy something on sale, what should I get? 40% less – or 40% off? They are very different things.
If I purchase something for 40% off, that means I get what I would have got if I’d paid full price but I get a 40% reduction on the asking price for the very same goods or services. The result, as we’ve discussed many times, is that the brand’s perceived value deteriorates and, if enough retailers participate, the actual market value of the brand also drops.
40% less on the other hand means I pay a lesser price but I get less for that price. How can that be? Surely a pair of shoes is a pair of shoes, right? Not necessarily. One of the first rules we were all taught in direct marketing is that it is much more economical to give than to take away. In other words, it is much more economically sensible to add services to a product in order to make it more valuable than it is to discount the asking price.
That’s because the price I can pay to add perceived value is generally much less than the cost of taking money away. Airlines are very good at this. You pay a lot more for a Premier seat than you do for an Economy seat – and in exchange the airline gives you a bigger seat, a different menu and perhaps more movies. They add to what you get, at a lower cost to them, than the revised price they ask you to pay.
But there’s no reason, on reflection, why that process shouldn’t work in reverse. In other words, what’s the reward for paying full price? Take our shoes example. What’s 100% worth? What does a customer get for paying full ticket that they wouldn’t get if they bought the same product in a sale? Because it’s only by establishing that, that a brand can establish what the new receivables are for 10% off, 20% off, 40% off … If I pay full price for the shoes, perhaps I should get a free fitting, my first replacement heel free, a 14 day money-back guarantee and a shoe care kit. If I pay 20% less, I don’t get the replacement heel and I have to pay for the shoe care kit. You get the idea …
The beauty of this arrangement is that it allows those people who just want to buy on price to do so, whilst simultaneously encouraging those who buy on value. Just taking 40% off and delivering the same as 100% doesn’t do that.