2 years ago
My mother and I spent over an hour and a half one day with an audiologist who does nothing more than sell hearing aids to the hard of hearing…
And before you ask - no the hearing aid wasn’t for me. As most people will readily confirm, I hear exactly what I want to hear.
Anyway, after completing all the hearing tests, we were offered a choice of two units. I asked him about the difference between the mid priced units he sold, and the top of the range units, which were about 40% more expensive.
He said that the differences weren’t that huge - a few bells and whistles which most people wouldn’t need or use… (actually that’s a terrible analogy… the last thing you want on a hearing aid is a terrible screeching whistle!)
So in other words, a lot more money for not much more benefit.
And yet these dearer units still sold very well.
Most market place products are affected by this phenomenon of diminishing returns as the price goes up beyond a certain point. Cars are an excellent example of this. The manufacturers create a standard car, and then offer more expensive variations on the theme, which offer some additional benefits or other, but the increase in price is usually far in excess of the increase in benefits.
I know a man who had such a car. It was a Porsche 996 GT2, and when it was new, it cost about 70% more than the standard 996.
It goes faster, and looks far better, but to the untrained eye, it’s not that much different from the standard product. In fact, in some respects it’s actually worse because it has no back seats and many of the creature comforts have been removed, to save on additional weight.
Oh and after having ridden in this beast, it seems they appear to have done away with the suspension too. And yet despite all of this the original buyers, still happily paid over £40,000 extra for the car.
Now, before you think this man had taken leave of all of his senses, he actually bought the car second hand when it had depreciated to a point much closer to that of the current price of the standard car, and it’s actually now depreciating far less because of its exclusivity.
But that wasn’t what influenced the original buyer.
Like all buyers of premium priced, top of the range, products... they purchased this vehicle for one of a number of reasons:
1. Either they have plenty of money and always have to have ‘the best’.
2. Or they were prepared to ‘overpay’ for the unique benefits of the product.
3. Or they crave for exclusivity… to own something which very few other people have… and are obviously prepared to pay over the odds for the privilege.
When you think about most of the things you spend your own money on – there’s usually the opportunity to buy a premium priced version of the same product… one which is better than the original, but probably not better value for money at all.
Consumer durables, furniture, clothes, food, holidays… just about everything, fits into this sort of pattern.
And here’s what’ interesting for you and me…
No matter what kind of product or service you may offer, there are probably a hardcore of your very own customers who would pay considerably more for a ‘better’ version of the same product or service… and they’ll be prepared to pay far more than the enhancements will ever cost to create too.
So if you’re not currently doing anything to serve that latent demand, you’re going to be missing out on a big profit making opportunity. And what’s more, you’re leaving yourself wide open to your competitors jumping in and taking the cream off the top of your market.
So having just learned all this, all that remains for me to do is ask... Does anyone want to buy a kitchen with go faster stripes on it?
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