The Art of Upselling
Ever wonder why movie theatres charge so much for the small bag of popcorn, and so little extra for double or triple the amount? At Cineplex here in Canada, the first seven cups cost about $5, while the extra seven cups you get in a medium are just $0.50 more. It’s a discount of 90%.
The first seven cups are so expensive because there is no real alternative to hot buttered popcorn when you are in the theatre. It’s the same reason we can charge more for roses at Valentine’s Day.
But, as great as popcorn is, the theatre readily acknowledges a shortcoming. It has what is known as diminishing marginal utility, meaning that each additional unit consumed provides a little less utility (in this case, pleasure) than the one that came before it. The last handfuls just aren’t as valuable as the first, and you won’t pay as much for them.
Popcorn is also highly perishable. You can’t go to a movie this week, take advantage of the discount to get twice the amount, and save half for the next week.
So the movie theatre is ready to make a deal. Rather than not ever selling medium or large sizes they’ll give you a big discount to spend a little more. They’ll make a much smaller profit on the additional units, but it’s profit they would not have seen otherwise if they had stubbornly insisted that twice the popcorn should come at twice the price.
Flowers are much like movie popcorn. Flowers offer diminishing marginal utility – two dozen roses generally don’t provide twice as much pleasure as one dozen. And flowers are also very perishable – you can’t order two dozen roses at Valentine’s Day and save half for Mother’s Day.
That means that Valentine’s Day roses are ideal candidates for volume discounts.
The pitch would typically go like this:
“How may I help you?”
“I need roses for Valentine’s Day.”
“Sure! We have one dozen at $60, or our 25 Rose Spectacular at $125.”
At this point, the customer makes a decision. Hopefully they choose the much more profitable $125 option but, if they don’t, we’re not giving up. At this point, you proceed with the order and get all of the delivery information. Then, before running the payment, you can come back with a kind of counter-offer, something like this:
“So just to confirm – one dozen roses for $60. But we’re having a special and can add an extra six roses for $15, or an extra dozen for just $30. It’s double the number of roses for half the price.”
This is a very compelling offer. They have already agreed that $60 for a dozen represents fair value because they agreed to pay it. In that context, an extra dozen, for just $30 more, is an unbeatable value and some people won’t be able to resist it.
Not everyone will go for it, and those that do will be generating a smaller profit on the second dozen… but it’s still profit you would not have seen otherwise.
Meanwhile, the people who placed a high value on more than a dozen roses went for the 25 rose spectacular, generating a much bigger profit.
Next time you are at a fast food restaurant, or buying popcorn at the movie theatre, take a look at the menu boards. You’ll likely see that the majority of the space is devoted to bundles of multiple complementary items.
These bundles are magic. Study after study shows that people spend more, and buy extra items they wouldn’t have otherwise, when presented with bundle options. In fact, studies have shown that bundles are popular even when they are priced higher than the sum of their component items.
Bundles also lower what is called the ordering cost. In this case, cost is not about money but rather the time and effort that goes into selling and entering the order. Reducing the ordering cost benefits both you and the customer by saving you time.
“Bottom Line” customers love bundles because it lets them skip past the drip, drip, drip of delivery charge, add on item, etc. They know right away what their order is going to cost, and they don’t feel like they fell for a bait and switch. This is a real complaint for some buyers.
Valentine’s bundles typically include the flowers, delivery, and something else. This last part is the secret sauce—you want to slip a really high margin item in there that adds value. This is the item that gets the customer to spend a little more on the bundle, adding to your profit.
Bundles are typically priced 2-5% lower than the sum of the component prices. You don’t have to discount at all—bundles should sell well regardless—but if you call it a “value bundle,” you better discount a little. Otherwise it’s embarrassing if you run into a customer who is good at math. And never imply delivery is free; it’s included.
During the sale process bundles are best introduced as soon as you know the customer is interested in Valentine roses:
“Can I interest you in one of our premium/value bundles that includes roses, delivery, and upgraded gift card/chocolate? Or would you rather just start by talking about the flowers?”
Don’t expect everyone to choose a bundle, but you should see healthy interest, and a quicker more profitable sale each time.
Have you ever wondered about all the extra space at the top of a box of cereal or bag of chips? Or dimly remembered that the 14-ounce bag of frozen shrimp used to be a pound?
This practice is known as weight-out or de-sheeting (from when the number of sheets in a box of tissue or roll of paper towel is reduced).
It’s commonly employed when a vendor needs to increase prices but doesn’t want the customer to know. Market conditions may have forced them to raise prices several times in short order and they fear customer revolt. Or, perhaps, there is a recession and they don’t want to appear insensitive. Selling a little less at the same price lets them sneak in a hidden price increase.
It’s a little harder to do this with the perennial Valentine’s Day staple of a dozen roses. Selling ten roses when recipients acutely know the standard is twelve can start a chain of events that does not end well for you or the customer.
It is possible to play with bigger numbers though. For instance, instead of two dozen roses, your Valentine’s Spectacular might contain 20. And Valentine’s arrangements, as opposed to straight dozens, are another option. When the gift is more than just roses in a box, it’s easier to get away with ten flowers.
Don’t Forget Singles!
Single roses can be wildly profitable, but many florists ignore them, usually because of one of the following misconceptions….
“If we don’t offer singles, people will buy a (more profitable) dozen instead.”
Not true! The assumption here is that the person looking for a single is just trying to avoid spending more on a dozen, but sometimes people really do just want a single, and moving them to a dozen makes about as much sense as moving them to a casket spray. If you won’t sell them a single, someone else will.
“If we offer singles, we sell fewer dozens.”
The concern here is that, given the choice, some people who came looking for a dozen might switch instead to a cheaper single. This can be addressed partly through pricing (more on this soon) but also through progressive disclosure. Some stores keep singles “under the counter,” only offering them when asked, or if they see someone leaving the store empty-handed.
“Singles aren’t profitable.”
If we follow the same cost-plus formula we do everywhere else, then it’s true, there isn’t a very big profit in selling a single rose. But who said we had to stick to the formula? Customers don’t care about your costs, and you certainly aren’t obliged to limit yourself to a 3X markup.
Some stores have great success selling singles at $19.95 and higher. Typically, they use a high-end rose, give it a very nice presentation, and enjoy a very nice profit. And they have less money tied up in inventory.
Even a price-focussed buyer isn’t concerned with the best value (lowest cost per rose). He or she is simply looking for the lowest price. And small sizes never equal great value. The smallest tube of toothpaste costs less than the largest, but it offers less value. The same goes with flowers.
Always Let Them Spend More
In this business, we often get focussed on the lower end of the market: the price sensitive customers that we lose to supermarkets, big box stores, drop shippers, and dishonest order gatherers. We’re so busy worrying about the people who won’t pay that we forget about (and underserve) the ones who will.
Think back to a time before Whole Foods and an organic aisle existed in every supermarket. Did anybody think that groceries were too cheap? Did anyone volunteer to pay more? Of course not. But as soon as Whole Foods gave them a chance to spend more, many people did.
And gasoline… every year people spend billions extra on Premium fuel that their particular vehicle doesn’t need. And in many cases, it’s not just that there is no benefit—they’re actually ignoring manufacturer guidelines against buying premium gasoline. Why? Because it says “premium” and it costs more. For many people, price is the most credible indicator of quality. We might not understand octane numbers, but we pretty much all assume that a higher price equals better quality.
So what do you do with this knowledge? The first step is to have some premium options with compelling names (think: Signature, Platinum, Premium)—something that sounds good and expensive.
The next step is to give this premium option a bigger price. If you use a cost plus formula and you’re using better roses/containers and/or a nicer presentation, your price will, of course, be higher.
But what we’re talking about is using a bigger markup. If you normally multiply the cost of your materials by 3, try 3.5 or 4. These are premium options. Premium options cost more, and are more profitable. There is no obligation to sell everything at the same markup.
Unless you have a very high-end store, these premium options should be presented alongside your other products, and not exclusively. The conversation would be something like “Yes! We certainly have roses for Valentine’s Day, starting at $XX, or $YY for something from our Signature line.”
Not everyone is going to jump at it, but unless your store is built entirely on a very price-conscious clientele, some people will.
Discounting is often frowned upon, but done properly, it’s a good way to get business from customers who might also be tempted by supermarkets or order gatherers. The goal is to increase sales from people who would not buy without the discount and avoid discounting to people who will pay full price.
If possible, be selective in who gets the discount offer. If you have flagged customers according to price sensitivity in your POS or mental Rolodex, use that information. Extend the offer only to people who you think need a discount.
The next step is to use hurdles to discourage all but the most serious bargain hunters from taking advantage of the discount. The hurdle is something that makes the purchase a little bit less convenient (like lining up for sales on Boxing Day). By jumping over it, customers earn their discount. Meanwhile, the customers who are prepared to pay full price continue to do just that.
Coupons are one of the all-time great hurdles. People hate using them. And, in our business, a coupon that has to be redeemed in-store is even better. Someone who is willing to do that is serious about saving money.
Pickup is another hurdle. Delivery is a big part of the value florists provide and someone who is prepared to pick up in-store (especially when you have warned them what a madhouse your shop will be on Valentine’s Day) has earned the discount.
Another good hurdle is a, “I love you so much I couldn’t wait!” special with a discount for people who are OK with delivery on February 12 or 13. Again, people who are willing to bend the rules on the date are likely serious about saving money. And there is another benefit for you : By spreading deliveries out, you hopefully make the season a little more manageable.
This gets into early order discounts, a controversial topic. Some florists think, “They’re going to order from me anyway, so why give a discount?” Other shops feel more comfortable having orders on the books. It lets them sleep better, buy more effectively, and be more organized going into Valentine’s Day.
A good compromise is to make the early order deadline really early—at least 30 days in advance. Someone willing to pay for flowers in mid January is likely serious about saving money. This also gives you the opportunity to extend the deadline and send another marketing email to that effect.
Mark Anderson is the founder of FloristWare and an enthusiastic supporter of a number of industry associations. He is also a regular contributor of Floral Management.