Take Product Add Service: Result Is More Profit

August 24th, 2010 by Rob Berman Leave a reply »

Companies have learned that they can add service or convenience to products and raise the price. That higher price includes a larger margin and therefore more profit.

Example 1: Soap – Liquid Soap

Bar soap evolved to liquid soap to save the effort of rubbing the bar of soap.  Liquid soap morphed to foam to make it even easier for kids.  Along the way, pushing down on the dispenser seems to have gotten too difficult for society.  Reckitt Benckiser Group PLC, the makers of all things Lysol, has just come out with a battery operated, hands free soap dispenser.

A bar of soap costs about 50 cents.  The Lysol No-Touch Hand Soap System costs $9.99. Refills are about $3.50.  Same result – elimination of germs.  However, it costs about seven times more.

Example 2: Soap – Hand Sanitizer

Companies realized that while bar soap was effective at killing germs it required soap and water.  Wet Naps were created to hand to diners in restaurants to help clean their hands without water.  However, Wet Naps were not eco-friendly.  The package and the Wet Nap went into the trash. Wet Naps is an example of adding service and convenience while increasing the charge to the purchaser.

Consider hand sanitizer.  The gel is rubbed on your hands and then evaporates because it is alcohol based.  Now, there is a multi-use product in a small package that does not create litter or waste (package is recyclable).  The cost per usage is higher than bar soap, which is litter free and kills germs more effectively.  People are paying more for a product that solves the same problem.

The Takeaway

Margins are increased when purchasers value their convenience and efficacy of the product versus the competition.

Over to you.  What do you think?  Please comment below.

  1. Are you more likely to purchase a product that is more convenient?
  2. Do you look to differentiate your products through service benefits?
  3. Have you been able to raise margins by making your products less of a commodity?

If you would like to contact me, you may do so by visiting my LinkedIn page or e-mailing me at rcberman2 (at) yahoo.com.

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18 comments

  1. When I was a child my father always drilled into me “always try for that extra 10%.” What he meant by that is to always give more and try to get better. Work harder, be kinder, do more than what’s required. The same applies when selling a product or service. Give that extra 10% to make the product better and the service outstanding.

  2. Paul Novak says:

    I think the trick in a down economy is in finding the demand and filling it. When everyone has money and things are looking up, throwing away money for “convenience” is much easier to justify.

    Now if you want to raise prices, you better offer a value they need or you wont be seeing many huge takeoffs. Unless it’s portable and net related. Folks will pay anything to have even more abilities on their little black gadget that they’ll use maybe twice. Haven’t figured that one out yet.

    It really is about playing on perceptions. Unfortunately, despite all the talk about living healthy, excercising and active lifestyles, society is still being sucked into the mindset where it should be easy as possible to consume. It’s to the point where even opening a wrapper is being treated as an “inconvenience”.

    • Rob Berman says:

      Paul:

      If only we could invent a convenient way to exercise and to eat healthy. Inconvenience has been a major theme for product designers for years. They shout, “Even more convenient …”

      Rob

  3. When I am buying a product like bottled waters or a tub of wet ones, I don’t think I’m buying it for the convenience of using it. The companies have so successfully branded their products that I believe I’m buying it for the benefit of having a bottle of water (less money than buying a drink at a drive-up) or the benefit of having a way to wash my hands when I’m boating (no soap and water available). Like Julie, I don’t sell products. Those of us who sell services rather than products sell them the same way – through benefits. Thanks for a post that got me thinking Rob.

    • Rob Berman says:

      Sherryl:

      Those of us who have peddled services versus as physical goods have always had to explain benefits and features. When a potential customer cannot touch, feel or smell a product we need to be more creative.

      Rob

  4. I laugh as some of the things that are so convenient.
    Why is it more convenient to make hamburger helper when you still have to brown the hamburger and cook the noodles. Save the money and brown the hamburger cook the noodles and add your own spices.
    Why is bottled water so convenient when you can fill a water thermos at home and you dont have to drive to the store.
    Peanut butter and jelly sandwiches in a bag! How much time did you save not spreading the peanut butter.
    I love time savers but some really dont take less time they just cost more because they are perceived as being convenient.

  5. Susan Oakes says:

    Hi Rob,

    In my past life as a marketer I have launched products that had added extras.The reason they work is people will pay for the perceived benefit and do not always think rationally.

    Depends on the product I will buy for convenience, even though I know I am paying extra.

    Good post.

    • Rob Berman says:

      Susan:

      I have launched lots of products with extras to induce purchase. The trick is to make the purchaser feel they are getting more than their perceived value of the product.

      Rob

  6. In a way it’s amazing that it works. But consumers feel backwards if they don’t have the latest things. And it’s not just with affordable things like the ones mentioned. Who uses a Walkman nowadays? A kid showing up at school with one would probably be laughed at.

    It’s good for profitability, but questionable from society’s point of view. What’s wrong with a normal handsoap? It would be much better if Westerners started saving money instead of spending more and more on items they do not need.

    • Rob Berman says:

      Catarina:

      I the US we refer to the idea of having what everyone else has as “keeping up with the Joneses.” I guess we are competitive with our neighbors. No need to be, but we live in a world where it is almost expected.

      We do you hand sanitizer since it is portable. But we buy a big bottle and refill little ones so it is much more economical. I even tell the kids sometimes to make sure they use soap and water since it takes dirt and germs off their hands.

      Rob

  7. Laura Sheman says:

    You have hit the nail on the head. I do sometimes spend more for convenience. In the days of phone books and 411, I knew people who would use 411 all the time. Even if it cost money per call (I think the first three were free). I’d look it up. Now with the net, it is easier and faster to look it up here.

    Now I did apply this concept to my chess instruction business. I am writing a book to teach parents to teach their young children to play chess (ages 2-7). I also have an ecourse that I’m putting together, which will have similar content, but which will include “service.” I will offer a couple hours of my time in emails and phone calls, so that the parent can have the assurance of follow up and guidance. We’ll see which sells better!

    The book will go for $14.95 (I just signed a contract with a publisher). The ecourse will probably go for $195. Exactly like your examples!

    • Rob Berman says:

      Laura:

      You got the model and utilized it. Good for you. It does not take that many customers at the higher price to really push up the profit margins. Do you plan to follow up with a second more advanced book for this age group or perhaps one starting at age 8?

      Rob

  8. Rob, This post began to crawl on my last nerve until I remembered that I can choose to be a savvy consumer and exericise “choice” in my purchases. I think companies bank on (literally) the fact that consumers want things to be easy. I for one opt to save my pennies if a less expensive product does the same thing as the pricier one. A service however is much more subjective and though I give it the same scrutiny, I’m more likely to spend more for “kid glove” treatment.

  9. Hi Rob. I do indeed purchase products at times that are more convenient. The wet naps are convenient because if you are not near running water – your only other choice is dirty hands – right? However, I do find ways to make my convenience cost less money. Buying baby wipes and keeping a few in a ziplock bag is more economical and serves the same purpose as the Wet Nap. With Wet Naps you are also paying higher prices because of the convenience of the small individual packets. That convenience I do forego in favor of my ziplock bag to save money. Since I sell consulting services, I can’t answer your other two questions 🙂

    Insightful and interesting post!

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