It is tempting when starting out in business to want to discount, discount, discount. After all, that’s what people want, right? Low prices?
Wrong. It actually turns out that the more people pay for something, the more perceived value that item has. There is a study (that Dan Kennedy references in one of his talks…I cannot for the life me find it. Let me know if you can.) where to groups of athletes are given pre-workout drinks. One group is told that the shake was a generic brand costing somewhere from $1-$5, while the other group was given the same shake but told that it costed somewhere in the $20-$25 range. The group with the “more expensive” shake performed much better, despite drinking the same stuff as the other group.
So when you discount, you are actually making it so your client is less-satisfied. I’ve seen this in my own businesses when I used to give discounts. The more of a discount I gave, the harder that client was to please. The more I charged for my services, the easier the client was to please. It’s a strange thing, the way it works.
But there is no arguing that people love a discount. Everyone likes to feel like they are getting a “special deal” or that they are “smart” for saving money. I’m here to tell you that you can have the best of both worlds.
Introducing the Value Add
A value-add is, simply enough, a way of giving your clients more perceived value than what they are paying for without discounting and de-valuing yourself.
I recently did a live-training on positioning and selling, and one of the questions I received from Chandler, a magician, at the end of the call was:
“Would it be a good idea or a bad idea to offer a discount for first-time bookings, while still quoting regular price?”
Here was my answer:
“It depends on what way you look at it. I personally prefer to add value rather than take away price. On the surface they can look like the same thing, but it makes a huge difference in the way that people perceive you. I’ll give you an example…my prices for an hour of magic is $500 – that’s the standard.
Occasionally for non-profits I would give a discount, but I would take something away or have them add something if I was going to give a discount. So for example I would ask them, are you doing any media promotion? Can I be involved in that? That’s how I got on TV one of the times, so I was happy to give a discount. I was on the morning news. Or I would ask, ‘Do you have a gift bag? Can my flyer be in that gift bag?’ and I might give a little discount for that. But I never discounted without taking something away or having them give me something extra.
When it comes to for-profits, I give them my regular prices, and I have 3 packages: small, medium, and large. Most people go for the medium — I designed it that way. And instead of giving a discount, I add value. So I tell them, ‘well for $500, you get me for an hour to perform magic. However, you also get a free gift worth $400, which is the Reactions Photographer. I have a photographer who will come to the event and get perfect photos of people reacting to the magic, and I have a deal worked out with her where I’m able to give her to you for free as a part of my performance package. You also get those photos edited for you, and send to you after, which has a $50 value.’ And I told them about some other stuff that I kinda just added in there.
And then what I do is, on the invoice, I show all of that stuff. And I show four columns: what they’re getting, the value, and the discount, and the price they pay. So I will say Walk-Around Magic – $500, Discount – $0, You pay – $500. Then below that I will put Reactions Photographer – $400, Discount – $400, You pay – $0. And then I will just go down the list like that, giving discounts for all of my value-adds, but still showing all of this value that they are getting.
Then at the bottom I will show the total price, something like $950, with a discount of $450, and a ‘You Pay’ of $500. This way I am giving a feeling of a discount, but I’m not discounting myself. I’m not taking money away from myself – I’m not devaluing myself. I’m giving away more stuff for free. So this way they walk away feeling like, ‘Wow! I got a really great price for that!’ but they still value you, because you were still worth $500 to them. They just got that other stuff for free.
So it’s a subtle shift from, ‘Hey, my price for all of this is $950, but for you I am going to lower it to $500,’ Right? Because now they’re thinking…why is this guy going to lower his prices for me? Is he not good enough to charge full price? Is there some reason why I wouldn’t want to pay full price?
So it’s a subtle difference, but it makes a huge change. And you want to send everyone an invoice, and you want to list every single possible thing that you can just to show them, psychologically, how much value they are getting for their money. But never discount yourself, in my opinion.”
Thoughts? Comment below! I’d love to hear them.