Why Costco Discounts Postage Stamps ? and Why It Matters ...

A good equation for value is as follows:? Value = Personal Benefit minus Cost and Inconvenience. But the ?personal benefit? variable can easily override the cost factor for a significant sector of the market, at least up to a certain point. Not everybody values money the same, clearly: If commerce were all about low pricing, there would be no space for retailers like Nordstrom; everyone would be shopping at Walmart. Instead, for Nordstrom customers, quality, personal shoppers, and a great return policy provide a personal benefit that make the equation?for them?work out in favor of paying more to get more.

Therefore, in product and service design, it helps to focus on the personal benefit you provide for customers in return for the price you charge. In fact, the closer you get to your customer, the more you can minimize price as a consideration?unless, in fact, high price is part of the benefit you are providing. (If Tiffany had a ??crazy markdown sale?? every weekend, would their blue boxes have the same cachet? At Tiffany, the famously high prices themselves confer a benefit to the customer purchasing a gift.)

A loyal customer is the least price-sensitive customer of all. But almost all customers are at least somewhat sensitive to pricing. To unsophisticated customers, a high price is generally a sign of quality. (Homer Simpson never stoops to choosing the cheapest wine on the menu; connoisseur that he is, he always picks the second cheapest wine on the menu.)

But price doesn?t always equal quality, and a sophisticated customer often understands this. For example, Costco, a discount chain whose customers skew to well-above-average per capita incomes, has changed the meaning of low prices to ??We work hard all the time to find you better value.?? They stick so consistently with this message that they have elevated it to the level of high theater.

On a recent trip there, in fact, I saw stamps discounted at the checkout counter. Costco was apparently happy to lose five cents a roll (not even Costco is able to negotiate with the U.S. Postal Service) to ensure that the very last impression their customers get leaving the store is one of value.

Portions of this article appeared in a somewhat different form in Exceptional Service, Exceptional Profit.? All rights reserved.

Source: http://socialmediatoday.com/micah-solomon/790886/why-costco-discounts-postage-stamps-and-why-it-matters

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