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Show your costs to boost sales
- offtop5 5y agoYes, whenever I try to buy something if you hide the price behind a sales call, I'll just assume it's some absurd amount of money. There's no reason to do this, have pricing front and center and be honest about it. My dream service would say something like $10 a month flat rate hosting, and in bold print underneath say it's not a promo rate. I think digitalocean does this
- brobdingnagians 5y agoSame, if I have a choice between a service that shows the price and one that doesn't show the price, I tend to prefer the one that shows the price with the assumption that the one without the price is probably only catering to very large businesses and/or is trying to price gouge me for whatever they can get, which doesn't sit well with me.
- selykg 5y agoYup. I had to call iStockPhoto about pricing and the entire thing soured me so bad on it that I basically told them I was out. I shouldn't have to call to get a price. It wasn't even my money and the company would've paid it just the same. But the principle of the matter is that if you want to piss customers off, hiding information is a clear way to do so.
- yunohn 5y agoThis is not what the article is talking about, at all. This is a completely different concept, of showing the input costs for FMCG goods.
- Normal_gaussian 5y agoThis is not what the article is about. The article is about disclosing cost and profit alongside price.
- okl 5y agoHiding the price also makes the whole purchase process more costly (time intensive) for the buyer and it prevents impulse buying.
- sodality2 5y agoThis is regarding costs to produce items, not prices.
- suprfsat 5y agoClicking the link to read the article is absolutely free, give it a try.
- cody3222 5y ago"People said they were 14.2% more likely to buy this chocolate bar when they were shown the version with a cost breakdown." What people say they would do and what they actually do are 2 very different things. The conversion rate of actual behavior needs to be tested for this to mean something useful.
- yunohn 5y agoExactly this. Plus, I didn’t see “profit” mentioned anywhere in the costs, and the article also touches upon the (mostly obvious) fact that for high margin goods this would impact them negatively.
- tdmckinlay 5y agoThe effect was tested on profit margins as low as 17% and as high as 55%. Outside those ranges it's unclear if it will still work.
- yunohn 5y agoI understand, so maybe my critique was a bit of my personal views. Rather I meant that it’s a bit odd that costs are clearly specified, but the consumer has to calculate the profit themselves. In my mind, that actually makes it less transparent as high profit margins are what drive the crazy capitalist market we have today, and associating small values to material and labor doesn’t make me feel better when the profit is the “artificial” portion of my purchase price.
- mitchdoogle 5y agoI think the assumption is whatever the difference in what the item costs vs the total listed on the package is the profit
- edent 5y agoAs it says in the article "Sales of chicken noodle soup bowls ($4.95) in Harvard’s campus canteen increased 21.1%"
- londons_explore 5y agoMost "premium" products costs are mostly Advertising, R&D, paying employees/shareholders, etc. They're valid things to spend money on, but don't reflect the "top quality ingredients" that consumers expect the money to be spent on. I suspect many consumers wouldn't like to know that the $1500 iPhone they just bought only has $400 worth of actual parts in.
- 55555 5y agoExactly this. A lot of consumer gadgets that cost $60 involve spending $30 on ads.
- devoutsalsa 5y agoI'm willing to buy a $1500 phone w/ $400 in parts because it has a better user experience than $150 phone with $50 worth of parts.
- weird-eye-issue 5y agoWhy are you comparing a $1500 phone and a $150 phone? And how is that even relevant?
- molszanski 5y agoTotally agree. I am too, willing to buy a $300 000 car w/ $100 000 in parts because it has a better user experience than a $30 000 car with $10 000 worth of parts.
- Uehreka 5y agoI agree with the gist of this comment, but not the numbers. I don’t have sources to hand at the moment, but while Apple’s margins are notoriously high, they’re not that high. OLED screens are quite expensive.
- LeifCarrotson 5y agoHere's a source that says the cost is $415. You're right that the OLED is expensive, it costs $23 more than the LCD it replaces. https://www.counterpointresearch.com/bom-analysis-iphone-12-costs-21-percent-more-than-iphone-11/ https://www.counterpointresearch.com/bom-analysis-iphone-12-...
- Black101 5y agoThat can't be true in all cases.
- neolefty 5y agoThere are a few hypothetical exceptions discussed, but the authors were surprised to see that in all the cases they looked at, it seemed to help. > Extremely high profit margins (>55%) could trigger a negative reaction, although this was not tested. Likewise, suspiciously low margins (e.g. negative or very low) could negatively impact the effect of trust that drives increased sales.
- Black101 5y ago> Extremely high profit margins (>55%) could trigger a negative reaction, although this was not tested. that seems like the important thing to test to be able to make such a broad statement.
- tyrex2017 5y agoomg, brace for BS marketers start putting fake cost numbers on their products to boost sales..
- pc86 5y agoWouldn't that be illegal?
- LeifCarrotson 5y agoYes, your point? That's never stopped them before!
- gpm 5y agoOutright lies would be, but hollywood accounting is a thing even when the relationship is adversarial. For example set up two companies, company 1 purchases the ingredients for cheap, does some minor amount of work on them, and sells them to company 2 for way too much money. Company 2 then turns them into soup and makes 0 profit. Cost breakdown on the soup makes it look like the ingredients were really expensive, but actually it's just that company 1 is making the profit instead of company 2, and they happen to have the same owners. (Note: Not legal advice... I don't know if this exact scheme would be legal, but I'm pretty sure schemes like it would be).
- gamblor956 5y agoWithin a single country, legal, since ultimately the same tax is paid and Corp 2 isn't lying about its expenses. (Corporate income taxes are usually flat rates, not progressive/step rates, and most corporate groups file a single consolidated return for the entire group.) Across borders, it would be a huge violation of transfer pricing laws and result in huge penalties. But the marketing part of it would still be legal. What you've described is actually pretty similar to how Coke/Pepsi is sold: Company 1 (Coke/Pepsi) makes the syrup, which they sell for inflated prices to Company 2 (the bottler/distributor), which then sells it to a store (Company 3) for a less-inflated wholesale price, and the store usually sells it at very small markup as a loss-leader.
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- jrwoodruff 5y agoThis seems like a great marketing technique for up starts trying to compete in the quality/price space. In the chicken soup example, for instance, cost to produce is a strong indicator that the soup has quality ingredients, and isn't just a big markup on some generic condensed soup. It's a similar thing with the backpack, but in the other direction - this price isn't low because we cheaped out on manufacturing and materials, it's cheaper than J. Crew because they spend too much on marketing. The line item cost breakdown is an indicator of honesty and product quality, which of course increase trust. That's not going to work if you're selling $10 shirts for $120
- lupire 5y agoThe shirt costs $70 in "labor" of the CEO.
- jkestner 5y agoUpstarts, perhaps. Startups, I wonder if seeing that the $50 gadget costs $60 to make will have a positive impact. It may signal that the cost is being subsidized by investors (and the business may disappear) or by selling your data. But I'm all for transparency to make better decisions.
- infogulch 5y agoWell then the presence of a cost breakdown becomes a selling point. If the price of your product is unusually low compared to your competitors that openly display their costs and you don't, maybe that would raise some (deserved) suspicion that something else is going on.
- Iv 5y ago> Extremely high profit margins (>55%) could trigger a negative reaction, although this was not tested. Likewise, suspiciously low margins (e.g. negative or very low) could negatively impact the effect of trust that drives increased sales.
- pizzaowl 5y agoI think this would actually work even if forced by regulators, assuming the company is honest and publishes reasonable numbers. I worry about companies lying to make numbers more "realistic" to customers or to hide marketing spend.
- rustypython 5y agoI think this generally works, at least as a justification for price increases (if your suppliers increase their price, people don't blame you for increasing yours). But this is also true: > Extremely high profit margins (>55%) could trigger a negative reaction, although this was not tested. We don't see Google talking much about its costs, for instance.
- blinding-streak 5y agoThe article is interesting and all, but the fact that I had to wade through 3 separate "subscribe to our newsletter!" sections before even getting to the start of the real content is ridiculous. I counted a total of 6 different places where the user is asked to sign up for something or take some sort of action. Good lord.
- Veuxdo 5y agoSadly this is standard practice now on every "website" out there.
- vincentmarle 5y agoIt worked for me, I did sign up.
- blackshaw 5y agoSubstack makes it way too easy to fill your articles with "Subscribe" and "Share" buttons; you can do it with one click.
- gertlex 5y agoI didn't even read the page ultimately, since I couldn't identify where to start reading. Roughly every half screen of scrolling, the content formatting changes dramatically (and clearly some of it was subscription info, which is not how I want to start reading), and then I was at the end of the page... I'd failed to identify the "body" of the article and so closed that tab.
- Vaslo 5y agoYes it's always a great idea to boast about my costs, that way my competitors can see my cost structure and margin to undercut me!
- atleta 5y agoMaybe it works for products and services that are priced based on the costs (i.e. cost + a competitive margin). Not so much if you can do a value based pricing. Which is the case when you don't have too much competition, when you're not selling a commodity.
- unobatbayar 5y agoWould love this try this, but seems difficult for software products. Stating server costs etc might be a good start?
- frankbreetz 5y agoI would say I would be more likely to buy the chocolate, but not the chicken soup. The bulk of the cost being an opaque category like labor wouldn't sit right with me. I feel like I am being tricked. Whose labor? The chef, the server, the farmer, the truck driver, the CEO. I think if the broke this category out more it would work better.
- GuB-42 5y agoIf showing your costs puts your product in a good light, then do it, if it doesn't, don't. The article just shows that cost breakdown is one thing you can use in your marketing. It is the same as showing where your ingredients come from. No product will show "made with GMO corn from the most productive industrial farms". If it is shown, it means there is something desirable about it. Transparency isn't always a good thing. I think JCPenney’s tried it, and it was a huge marketing failure.
- PedroBatista 5y agoI'd like to see how this actually plays out in real life, aka. people buying instead of saying they would buy. Also, for "regular" physical goods it's more or less easy to do the cost break down in a clear way, but what about services and software?
- ssharp 5y agoI've done substantial amounts of a/b testing and experimentation around ecommerce pricing and it's pretty rare for a maxim like "show your costs to boost sales" to hold to in either 1) the long run or 2) across multiple product types, audience types, brands etc. Especially with something relatively novel like this, results are very prone to bias since novelty has the tendency to increase purchase-intent in the short-term. As far as audience, I'd say the audiences of folks interested in a $115 wallet, Harvard students, Everlane/J Crew shoppers, and craft cocoa buyers are on the more affluent and/or intelligent side, which may compound the novelty effect or at least have the transparency resonate more.
- xgulfie 5y agoYeah, seeing the cost breakdown for luxury goods like this feels totally different than for seeing one for other things, like a bottle of Coke or a handmade good from Etsy.
- mistersys 5y agoYeah I don't think a cost breakdown on my drop ship products on Etsy would increase sales. We roughly double the price vs. cost of goods, but it's not like we're rolling in dough because at our volume fixed expenses take up a really significant amount of our profit.
- therealdrag0 5y agoWhat if you amortized your fixed costs (equipment?) over expected life span and included that in the breakdown?
- moneywoes 5y agoWhat do you find works best
- andrewseanryan 5y agoInteresting idea but I have serious doubts that those who eat in the Harvard canteen are a good representation of the general public.
- Pfhreak 5y agoWhat's the incentive for companies to be truthful? Why wouldn't I claim higher costs for ingredients or labor? And why doesn't the price include things like money paid to shareholders and ceo?
- fencepost 5y agoThe thing that jumps out at me is that I don't believe the numbers presented in their main example. $0.26 for the noodles in a single bowl of soup? What are they doing, hand making fresh noodles from artisanally grown heirloom grain hand harvested by fully tenured professors at their normal hourly rate?
- erikprotagonist 5y agoI used to work with a IT service provider (hardware, support, monitoring, help desk etc) which had to me an interesting pricing policy on hardware - they were an IBM reseller, so they just sent the customer the price list they got from IBM and said they added 10% on top of the IBM wholesale price. I guess the 10% covered installation and configuration and such. They did quite well, which probably had a lot to do with coming across as honest. Certainly more honest than the kind of vendor where you have to ask some guy with a really fancy watch for a quote - I've met a couple of those.
- Gustomaximus 5y agoIn a more business sense, Id say this is a mixed bag. I have some clients I'm extremely open with about team and jobs costs. Usually more experienced people who know we're all here to make a dollar, know a good job isn't the cheapest, know everything looks simpler before you actually do it. Generally operate on my preferred methodology of 'everyone be reasonable'. With some people, not always but often more junior, I limit detail. Some people want to micro manage quote breakdown pricing, question and screw down individual costs to the bone. Or use your details to improve their job plan and go to the next vendor and see if they can get it a bit cheaper. Etc. So when you know these people or feels like it will be, as few lines as possible is best.
- infogulch 5y agoMany comments here came up with a 'clever' comeback in the form of "Oh yeah? What about grossly overpriced product XYZ? I bet it wouldn't help their sales." Well no shit, sherlock. This advice isn't for them, it's for their competitor's product ABC who is aiming to make an honest product for a fair price. To head off such dense comments perhaps a better title would be: > Show your costs to boost sales for honest products
- lastofthemojito 5y agoThere's a very fancy, very expensive hotel in Newfoundland that I was lusting over recently. Anyhow, I saw an "Economic Nutrition" panel on their website, formatted similarly to the familiar Nutrition Facts panel seen on food packaging. They break down the cost of a stay into categories (Labor, Marketing, etc) and by geographic areas that benefit. It's an interesting technique ... although it did not convince me to actually book a stay at the $2000/night hotel. https://fogoislandinn.ca/your-stay/suites-rates/ https://fogoislandinn.ca/your-stay/suites-rates/
- rmason 5y agoWe've got a couple of local BBQ place's funded by proceeds from the sale of a local tech company. The founder just posted a video on Facebook yesterday explaining why their popular wings were being taken off the menu. He breaks down their exact costs, why they're currently selling them at a loss and why they'd have to raise prices 50% to make the dish profitable. A lot of people were angry when they announced the wings were being taken off the menu. Here's his reply, I thought it was absolutely brilliant marketing. https://www.facebook.com/Saddlebackbbq/videos/940747256672528 https://www.facebook.com/Saddlebackbbq/videos/94074725667252...
- ajkjk 5y agowant to, uh, just summarize it here?
- rmason 5y agoThe video isn't that long ;<). To summarize basically they have three choices: 1. Increase the price of wings 50% 2. Cheapen the ingredients 3. Take it off the menu until the price of ingredients drop After surveying their customers they found demand would drop drastically if they raised prices. They don't want to cheapen the ingredients because it would hurt their brand so the only real choice was to take them off the menu.
- throwawayboise 5y agoThere's another choice, they could opt to continue selling the wings at a loss, if that created goodwill or especially if it promoted the sale of other profitable items (e.g. drinks, other side items). This is called a "loss leader" and is a common marketing play seen in supermarkets.
- ajkjk 5y agoYeah, but I didn't want to watch it on Facebook.
- undefined1 5y agogreat find. it might've been worth increasing the price though, to see if customers still bought them or not in practice. with a note on the table or menu explaining why the price increased.
- Causality1 5y agoSeems pretty logical. Most companies try to screw their customers as hard as possible. When you're shown proof one of them isn't doing that, you're much more open to doing business with them.