January 17, 2011

Dear Marketing Executives: Weigh In On This One

Dear Marketing Executives:

I want to explain a situation that happened to me on Saturday.  After I describe the situation, I want for you to weigh in on the strategy employed by the company I purchased from.

What I Did:  I purchased $99.95 of software on Saturday from a company.  During the purchase process, the company attempted to cross-sell me four other software titles, for $99.95 each, a total of $399.80.  I chose to not purchase any of the four software titles.

What They Did:  They called me this morning.  They asked me if the software was working to my satisfaction (yes, it absolutely was).  The customer service representative says ... "I noticed that you did not purchase any of the four additional titles we sell.  I want to offer you a special promotion.  For today, and today only, I will sell you the four titles for just $99, a savings of $301 over the $400 you would have paid if you had purchased them on Saturday."


Your Input Is Needed:  What do you think of this cross-selling strategy?
  1. It is a brilliant way to extract $99 additional dollars from a customer at virtually no cost, increasing customer lifetime value.
  2. It is wrong to penalize the customer who did exactly what you wanted the customer to do (buy at full price and buy many items) while rewarding the customer who failed to do what you wanted the customer to do.
  3. It's ok to do this, because the full-price customer will never know that you offer deep discounts to customers who don't exhibit optimal customer behavior.
Discuss.

3 comments:

  1. #2. It's just stupid to penalize the customer who bought the software at full price. You are engineering a situation where your best customer - the one who assigns the most value to your products and is therefore willing to pay the most for it - can at any moment lose all good will towards you. This is very different than offering an occasional discount. First, it is a **75%** price chop. Second, and more important, the discount is a direct result of the customer's (in)actions. Thanks to this setup, the initial cross-sell is nothing more than a trap. By paying the full price, the customer doesn't get anything extra, in terms of convenience, time-to-deliver, or certainty. He is simply a "sucker."

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  2. Anonymous3:38 PM

    If you manage to convert a bunch of customers with this post sale promotion the smart thing to do is change your price structure. so it's one package at 99 but the suite at 200 or 250 or something. In theory you will get more total sales and save yourself the trouble to upselling later.

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  3. @eltonx9:07 PM

    Based on the info we have (and keeping it simple)....I totally agree with the previous post....and I hope this isn't tax software:).

    This isn't a discount problem, but a symptom of a business design/pricing flaw. And, these type of flaws usually end up hitting the customer before the business has realized it (ask your own CS department). I'd also say (and agree with the first post's sentiment) this company deserves to not have paying customers....at least not for long.

    If the different software packages don't lock in the user to expensive upgrades.....then there's two root issues here.

    1. Software has very little variable costs. This is of course how Windows and MS Office can be sold in China for $2 (so it's not pirated), but hundreds of $ in the U.S. It costs virtually nothing to "print" up additional software copies/licenses. In the case of this company, if it did have variable costs, they would see instantly how insane this sort of discount jump is.

    2. If there is really a value synergy between all the programs, they should do what successful companies like Adobe have been doing for years (e.g. CS Design). For example, sell the first offering for $79.95 and then sell the four packages together for $149.95. Or sell the first for $99 and throw in lite versions of the other 3 for free with limited time offers within 30 days. But atlas, it really depends on if the 4 software programs make sense together and illustrate real value to users.

    This sort of problem reminds me of an excellent (but aged book) call Information Rules by Hal Varian and Carl Shaprio. Good read if this sort of stuff interests you or your readers.

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