Pump Up the Volume - on Your Pricing!
Do you give volume discounts to your customers? Most companies do, and some like CostCo use volume discounting as their business models. Ever wonder why?
The obvious answer is that it costs businesses less. You only have to process one order. Therefore both sales & marketing expenses are lower, and the savings are passed on to the customer.
This answer is common and logical, but it's also wrong. Most companies base their pricing on what a customer is willing to pay, not what their costs are.
The reality? There are three good reasons for volume pricing, all based on VALUE.
1. It feels like a good deal. Believe it or not, customers who buy higher volumes typically spend more money. Ironically, these customers are more price sensitive. Psychologically they will spend more if they perceive they are getting a deal. Right or wrong, no one leaves CostCo or Sam's Club thinking they paid "retail". An added bonus is that volume pricing deters your customers from considering competitive products.
2. Your competitors are doing it. If your competitors offer volume pricing you must offer it, as well. Otherwise, you risk being seen as "expensive". Customers will be comparing the price of 100 of your products against 100 of your competitors'. If your competitor discounts for volumes, you must as well to remain competitive.
Remember, your customers make choices based on perceived differentiation and the difference in price. Your competitors' prices matter.3. You capture incremental sales. For many products, especially consumer goods, the second unit is less valuable to your customer than the first, but this works to your advantage! You've seen it in the stores: "Buy one, get the second one half price!" Customers weren't really going to buy a second product, but because of the "volume pricing" they are encouraged to do so. Volume discounts allow you to capture incremental sales without having to discount the first sale.
In your business, what volume discounts are you offering? Why?
Action: Think about your volume discounts. Are you offering them for one of the three reasons above? If not, consider rethinking them to increase your sales without much effort. Can you think of any other good reasons to give volume discounts?
