On October 13, 2014 the Denver Business Journal reported that Qdoba changed its pricing strategy. Qdoba is now bundling main dish and extra toppings to “address customer complaints that the burrito chain was nickel-and-diming them.”
You know precisely what Qdoba customers were experiencing. You’ve gone into establishments, found what you were seeking, seen a price that was acceptable, then been told that a seemingly innocuous request is going to cost you more money. If you had the time, you’d leave to find a less money-grubbing establishment.
To give you a sense for how dated the former Qdoba pricing model is, I recall using it when I worked for a residential home builder in the early 80s. I got the idea from observing auto dealers who priced their basic cars very low. Their profits came when customers added air-conditioning, power steering, power brakes and other options.
We took the same tact with new home sales. The base unit was ‘competitively’ priced and the real profit came from the extras – window, flooring, fireplace, trim and brick upgrades. It worked for awhile, until customers became savvy to what we were doing.
Over the years a number of social psychologists have studied how people buy and one of the things they’ve observed is that sellers experience higher average sales when they offer their highest-priced offerings first.
The rationale they offer is that when buyers push back on price and the seller makes a concession in the form of a lower-priced alternative, that concession makes it more difficult for the buyer to say ‘No’ a second time. I’ve also discovered that, when presenting the lower-priced alternative, using the language ‘what you’re giving up is,’ increases the likelihood of selling your highest-priced offering. Why? Four reasons.
First, none of us wants to give anything up. We want it all, as customers we’re just trying to see if we can get what we want at a better price.
Second, the language forces customers to become more conscious in their decision-making. The more conscious the decision, the more satisfied they are with their purchase.
Third, buyers feel in complete control. It’s their choice, not mine. I’m fine with whatever they choose. Because I’m not trying to push them in one direction over another, they get the sense that I’m simply offering information that will help them make an informed decision. That puts them squarely in control over their final decision.
Fourth, customers want to buy from people they trust. Because my focus is on helping them get the information they need to make the right choice for themselves, they trust me. That trust makes it less likely that they’ll shop my competitors.
Learn a lesson from Qdoba. Create a pricing strategy that incorporates all the options a customer could desire and price accordingly. You’ll not only improve your customers’ experience, you’ll see a marked increase in revenues and profit margins.
P.S. As the author of the Business Journal article intimated, the airline industry could learn a lesson from Qdoba. I couldn’t agree more.