Last week, I was in Shanghai delivering some in-house and public workshops on value-based pricing. As the name suggests, time in the workshop is devoted to identifying the economic value provided by a company’s products or services.
One of these workshops was for a company that sells fragrances. Sounds like a pretty tough gig doesn’t it – how does this company price and sell something as intangible as a fragrance on the basis of its economic value?
It wasn’t that long ago that the most we knew about our sense of smell is that it is remembered longer than the other senses, and that 75% of human emotions are based on what we smell. But that’s hardly a basis for pricing what is usually an ingredient in a recipe for a product on the basis of the economic value it provides.
Fortunately advances in, and new avenues of, market research now help not only with pricing fragrances on the basis of economic value (in both consumer and business markets) but also in changing behaviour, including getting your customers to spend more, in a retail environment.
One UK government agency has seen a noticeable decline in conflict and aggressive behaviour when they piped lavender into a room where people waited to pay fines.
In-store fragrances result in customers lingering longer in stores, and customers’ perception of the quality of the products and services on offer also improves. One shopping mall in the United Sates has increased average spend per customer by $US50-$US90 by using fragrances.
Brand-specific research has found that customers have been prepared to pay $10 more for a pair of Nike shoes when they tried them on in a floral scented room. And businesses that have piped the cool scent of peppermint into offices have saved 20% in air-conditioning costs.
Fragrances are not the only commodity-like products with seemingly intangible benefits. With a bit of research, it is possible to identify the economic value of a product. And you won’t have to worry next time a customer tells you your pricing stinks.