Every July, the time comes for me to renew my membership. To Costco.
Admittedly, this particular membership is a little different from the ones many associations are bringing to the table. Tying your membership experience to a giant warehouse that’s admittedly kind of sterile doesn’t capture the value you offer. Organizations like yours are in the business of relationships, personal and meaningful relationships, and belonging.
But Costco, through its membership, creates a collective that’s able to use its size to get access to the products they’re interested in, but at a price point that’s more favorable. That may not facilitate the interpersonal relationships organizations like yours do, but it provides meaningful benefit aligned with what the Costco member is looking for.
Earlier this month, we wrapped a two-part webinar series about some of the secrets of Costco’s success that you can implement in your organization. In Part 1, we talked through simple strategies you can take from what Costco has done, that may not redefine the value you provide, but can help guide some operations-focused decisions around packaging and pricing to help drive loyalty and revenue.
See, Costco uses psychological pricing, a pricing/marketing strategy based on the theory that certain prices have a bigger psychological impact on consumers than others. It may seem like a slight of hand, but this is how Costco packages and prices its curated inventory to build big business. One of my favorites? Bundling.
Bundling is one of the most popular techniques in pricing psychology, and Costco puts it to excellent use. Bundling can introduce customers to new products they haven’t tried yet. By pairing something unfamiliar with something they already want, the new item gets a boost – added credibility. It can also help retailers move less popular products, or products that aren’t seen as “essential.”
Costco is notorious for doing this during the holidays – where beautiful gift baskets might include two items a buyer wants paired with a ton he or she doesn’t. Everyone has seen the remnants of a basket around the office during the holidays, where the cookies get picked off first, then maybe the chocolates before there’s one or two items left that no one knows what to do with.
Bundles make their way into Costco year-round, and there are plenty of examples on its website. Consider this one, the highly-rated D’Artagnan Extreme Wagyu Burger Lover’s Bundle.
Basically, it’s four pounds of ground beef for $129.99, or just north of $32/lb. I appreciate Wagyu beef is significantly higher quality, but the $32/lb. price point is – if you’ll forgive the cliché – tough to swallow. So, what did Costco do? It increased the perceived value by adding a few other items. There are brioche buns and bacon, which are certainly nice, but relatively low cost. Then it adds truffle butter – an unknown for many consumers, and a luxury. But, paired with familiar items, buyers would be less hesitant – because they know they’re getting the more traditional burger fixings.
Bundling reduces the pain of paying. It makes it harder for consumers to know what the “right” price is for the individual products. I don’t know what truffle butter costs. I know it’s rare, so maybe that burger bundle is a good deal?
If you are thinking about bundling multiple products, here’s how to do it:
- Avoid mixing a cheap item and an expensive item and simply promoting the package
- If you are mixing products with different values, establish the value of the individual items first, particularly the most expensive one
- Take a lesson from infomercial producers and emphasize the additive nature of bonus items
- Focus on non-price attributes of the product (for example, durability or comfort) – the researchers say this will reduce the devaluation effect from mixed-value items
When it comes to bundling professional development offerings, consider treating different groups differently. Maybe offer various membership segments content that’s unique to their stage in the career cycle. Or consider giving them the same content in an alternate format that’s more in line with their preferences. You can start small here. You don’t have to completely overhaul your entire learning program – start with one segment, maybe a couple of courses and test your approach. It can pay huge dividends.