Last week I was talking with a business owner friend who was struggling with their product mix.
They sell two products, an entry-level and a more premium product. The premium product is multiple time more expensive but the entry-level one was selling better.
But something wasn’t right and they were questioning their pricing.
We ran some basic numbers and found out that the total cost to build, deliver, and fulfill the products were the same.
They weren’t looking at the full cost picture. The owner wasn’t talking into account customer service costs, returns, replacements, etc. All of that was lumped into general business costs which their premium product would pay for them.
Now the owner needs to make some decisions.
Do they try to drive costs down for the entry-level product?
Do they raise the price to cover the costs better?
Or do they stop selling the entry-level product entirely?
Do they adjust their marketing to promote the premium product only and keep the entry-level as a downsell?
Or can they sell it as a loss-leader to upsell the premium product later on?
This sort of business strategy comes from looking at your numbers. Your gut can only take you so far, it’s always good to check the numbers you have to make sure.
This owner isn’t on Shopify (yet…) but if they were I’d have them use Repeat Customer Insights to analyze their products for repeat purchases.
It would tell them how valuable those entry-level customers would be by analyzing how much those customers end up spending and how often. It might be the entry-level product is a loss leader or it could be just a losing product.
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