January 29, 2015

Sales-crushing headphones!

He was a new client looking for an international partner to grow his company. I was working with him in his office, assessing the strengths and weaknesses of his business.

As we were talking about his inventory policy, he said that he had problems in getting rid of cheap older products. He had recently started ‘bundling’ them with expensive items to increase the sales of the latter – and clean the stocks at the same time. But it wasn’t working. In fact, he was observing just the opposite: sales of the top-priced television sets had actually gone down when bundled with cheap headphones.

He was surprised when I told him that this was an outcome to be expected. It is also a very good example of what not to do when marketing a company. The value of the main benefit of a company to a buyer should not be diluted by emphasising smaller ‘add-on’ benefits.

There’s an interesting report on the subject. When Opposites Detract: Categorical Reasoning and Subtractive Valuations of Product Combinations by Aaron R. Brough and Alexander Chernev demonstrates that “combining expensive and inexpensive items can lead to subtractive rather than additive judgments, such that consumers are willing to pay less for the combination than for the expensive item alone.”

Forget the cheap headphones. Focus on the TV set!

To view the paper by Brough and Chernev: When opposites detract

The oldie of the week: Heart – Alone (1987)

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