(I hope you said ‘as much as possible’).
Closer to the real world, think for a moment about a product like SALT. Do you know the price for a kilogram of table salt?
Few people do.
This means salt is NOT a Known Value Item (KVI). There is an important aspect of KVIs that marketers can use strategically to their advantage – and it is something we learned in Economics 101, but then promptly forgot about.
It is called price elasticity and it is an important concept if you are serious about making money. Let me explain:
How much would you pay when you pop into the supermarket to buy salt?
- Would you buy it if I told you that it was $2.50 for a 750g container of salt?
- Would you still buy it if it was $3.00 a container?
- What about $5.00?
It is actually around $1.70 in Aldi Supermarkets.
I am pretty confident you would be prepared to pay more, AND I am confident you wouldn’t have done a comparison shop for anything under $5.
This means that they COULD have charged 50 – 300 percent more, and not have lost any sales!
The moral of the story is that KVIs are price elastic, and non-KVIs are inelastic. If a product is ‘price inelastic’ you can and should put the prices up! And keep doing it until the results suggest otherwise.
To the non-marketing readers, here is a little practical tip that shows this principle in action – and you may avoid the ‘trap’ in future. (Never say that blogs don’t offer helpful advice!)
A supermarket may advertise a ‘special’ – say 2L milk at 99c. Everyone knows that is a good deal because milk is a KVI. They selected milk as the ‘loss leader’ and this does two things:
It creates the perception that this store is ‘price competitive’, and since no-one goes to a supermarket to buy only milk, you will end up buying other things. And importantly, you won’t be paying much attention to prices because you already ‘know’ they are ‘cheap’.
At the heart of this concept is an important profit generator: In order to be perceived as affordable, you only need to price your KVIs at the appropriate price points. Everything else (the salt) should be approached differently.
It may not be a ‘million dollar’ question, but it may well be a ‘hundred-thousand-dollar’ question:
What is the ‘salt’ in your business?
And once you know… go and put the prices UP!