In many industries today, it seems that business is more competitive than it has ever been. Consumers, equipped with the tools to compare inventory, prices, and reviews from their cell phones, are pickier than at any time in history. Case in point: For my most recent iPhone upgrade at the Verizon store, I needed to buy a hard casing accessory to protect the new model. I looked at the selection on the store shelf and compared it to the Amazon.com price right away. When I told the salesman, he was willing to match the lower online price.
Many of the country's biggest stores are offering this type of price match guarantee. This has stopped the bleeding for companies somewhat, but it cuts into margins, and doesn't really stop the movement of customers to competitors.
However, there's another route to retaining and bringing in new customers besides matching prices. Even if your products are slightly more expensive, customers might be persuaded to buy from you if you can offer "add-ons" that have significant value. Add-ons are things such as customer service plans, accessory products, or personalized services that can be sold as a supplement to the primary product, and they can often generate more business than matching costs with competitors.
Differentiation Is Key
Simply put, it's becoming more and more difficult to compete on price. Mega-corporations such as Amazon and Wal-Mart keep expanding into new industries, and they've spent billions of dollars creating hyper efficient supply chains and building up economies of scale so that they can undercut the prices of any competitors.
Surviving in today's economy means offering a distinct added value that no one else can match. For many companies, that means add-on warranty and customer service plans in case their products have trouble. Many have argued that Best Buy's resurgence over the past couple of years has not been due to price matching, but instead because of its Geek Squad customer service plans, which have been lauded.
And, it's not just physical retailers that can offer add-ons either. Software providers can offer additional levels of functionality to go with their base-line software. Ultimately, the goal is to demonstrate the extra value you can bring to consumers rather than focusing on prices.
Add-Ons Build Loyalty
Customers love low prices, but they don't exactly build much loyalty. The moment someone offers even lower prices, customers will migrate to that competitor. Ideally, you want customers to develop an attachment to your company and your products, not just your prices. Add-ons show customers you're willing to go the extra mile for them and cultivate a sense of loyalty.
One of the best parts of offering add-ons is that they facilitate a conversation between salespeople and customers. As a salesperson walks a customer through the warranty, accessory, and other add-on options, they can get a feel for the specific needs of that customer and begin to build a personalized relationship. Demonstrating to customers that you understand their needs builds a deeper loyalty than low prices ever will.
Good For Margins
The biggest issue with price matching is that it brings down margins, which can already be pretty slim for a lot of retailers. Add-ons, alternatively, are beneficial to margins. In many cases, even if you sell the add-on at a break-even price, you're still making more money than if you tried to market the main product at a reduced price. Some add-ons, such as warranties, often tend to be significantly profitable on their own.
People often say that "less is more," but sometimes the truth is that more is more. Add-ons make you more money, bring in more customers, and create more loyalty.