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