Over thirty years ago, I started offering an introductory course at just $19.95 for a week of classes. Now, if I were to increase the cost of that intro course and translate it into today’s dollars, I’d have to charge around $35.00, accounting for inflation.
Yet, I kept that same price point for decades. But why?
Price Sensitivity, The Godfather Offer, And Making The Sale
“I feel the magic number on the infomercial, the two minute spots, it’s kind of hard to get past $20. That seems to be the magic number. The best things in life are free and $19.95.”
– Famed T.V. pitch man Billy Mays
I actually got the outline for that promotion from Jim Mather, after reading his excellent book on the business of running a martial art school (and for those of you who wonder where I got my business ethics, you should look no further than Hanshi Jim Mather).
For many years I played around with that price point, hoping to increase my profits on the front end (and it never worked).
There were two major problems with me fooling around with the price on that offer (well, three, actually – if you count the fact that you never mess with a winning promotion):
- I didn’t understand the impact of price sensitivity and the Godfather Offer –
- I failed to recognize that the profit was on the back end –
Price Sensitivity And Its Effect On Winning Promotions
If you look up price sensitivity on Investopedia, you’ll see it defined as “The degree to which the price of a product affects consumers purchasing behaviors.” A simple concept, and one we need to pay attention to in marketing our programs.
Now, most school owners mistakenly assume that price sensitivity is static and unchanging. However, smart school owners know that it is elastic, and affected by various factors… one of them being trust, and another being perceived value.
The more the consumer trusts you, the less price sensitivity will affect your ability to sell them goods and services (think about people who pay more for trusted brands). And, the greater the perceived value, the lower the price sensitivity.
And, that’s why when you run a promotion that is targeted at consumers who don’t know you from Adam, you have to make sure the price will be perceived as negligible, in relation to the value of the offer. Which brings me to my next point…
The Godfather Offer
In The Godfather, when Brando says, “I”m going to make him an offer he can’t refuse,” the implied meaning is that the alternative to the offer is so unattractive, it’s not even an option.
Now, obviously we can’t bust knee-caps and put horse heads in people’s beds to get them to take our classes (although, based on the marketing tactics I’ve seen some school owners use, they’d be better off if they did).
However, what we can do is present the reader with an offer that is so high in perceived value, that they absolutely cannot pass it up. That, my friends, is a Godfather Offer.
And, now you know why, decades later, I still charge $19.95 for my introductory program.