Build-a-Business with Referrals (the Build-a-Bear Way)

If business owners were to ask what the ideal price-point is for their product, I would say that there is not one, but many. Regardless of size, your business should offer multiple price points along with a plan to show customers the benefits of moving up the price curve and to ensure it is a frictionless move.

We had my daughter’s birthday party this weekend at Build-a-Bear Workshop. If you have never been there, it’s a place where kids build their own teddy bears and have a great time doing it. They pick the unstuffed animal, stuff it, dress it, name it and take it home. Kids love it. Besides having a great time, I noticed that Build-a-Bear is a master at pricing. What I observed fits into a pricing model that can be broken into six steps.

1. Introductory Pricing

Do not compete on price. I’ll repeat that again. Do not compete on price. Yet, at the same time, do not let pricing keep potential customers from talking with you. Offer a price point that will not send prospective customers away before you have had a chance to demonstrate your full value.

You can take home a Build-a-Bear bear for as little as $10. But you could easily spend $100 on a fully dressed, shoed, accessorized, scented, speaking bear. Build-a-Bear advertises parties starting at ”$10 per guest” and then readily shows you what else you can get when you step up to $15, $20, and $25 per guest [1].

Don’t make customers write you off because of price before you have had a chance to show them what you offer [2].

2. Provide a no-pressure upgrade path

While we were at Build-a-Bear, there was absolutely no pressure to upgrade. We told our hostess what our budget was and that was that. She helped each of the kids pick out options the fit the
budget. Everyone was happy. So, with no pressure to upgrade, any buying decisions were ours.

When and if customers upgrade, it is because they want to, not because they were sold into it. Note though, that no pressure does not mean no opportunity!

3. Inform customers of all available products you provide

With colorful, clean displays, Build-a-Bear clearly demonstrates to purchasers the opportunities to upgrade. Colorful clothes. Sparkly shoes. Exciting sports accessories. All were right there – clean, sparkling promises of more and more fun.

If you are not in a retail environment, keep in touch with your customers by email newsletters sent out automatically, with a blog, or by mail. Even if you do not have an ongoing relationship (such as a monthly subscription), you should to follow a consistent process of sharing updates and new product offerings with your customers.

Whatever means you use, make sure that the products or services are readily available for purchase. Again, back to the bears…

4. Make upgrades frictionless

When I say “readily available”, I mean readily. At Build-a-Bear, the clothes are not ready to unwrap and put on the bear. Not ready to buy and put on the bear. The clothes and accessories are ready to be put on the bear right there. Easily. Quickly. You don’t go buy something and then put it on your bear. You don’t ask for a sales person to take something down off the shelf or the rack. It is all right there in colorful displays, enticing you to pick up and put on to your instantly cooler bear.

Shopping for your products should be as simple – and enticing – as that. If you are online, give your customers ample chances to say “I want that” with persistent and numerous links and simple shopping.

A lot of companies do the first four steps – introductory/tiered pricing, up sell, newsletters/blogs, and frictionless upgrades. (Netflix has plans starting at $4.99 a month, but if you want unlimited rentals it’s $9.99 a month. 37signals offers free versions of their products with occasional offers to upgrade).

Build-a-Bear though is an example of companies that go even further by turning their welcoming pricing and no-pressure strategy into a referral machine.

5. Extra → Give them your best even if they are not your biggest

It is critical to Build-a-Bear that all customers have a very positive experience. There is a reason why the hard sell would not work there. There is a reason why they want everyone to have a positive experience, regardless of how much they spend. That reason is; referrals.

6. Extra → The Power and Importance of Referrals

Over 50 percent of Build-a-Bear’s business comes from word-of-mouth referrals. By making its purpose and plan to make a fan (and a salesperson!) out of everyone who comes in the door, the value of each individual sale becomes less important and the value of customer satisfaction more important. A customer that does not spend much money today might send a ton of business to the company. The value is no longer only what they spend during their 45 minutes in the store, but who they send for years and months to follow.

This makes everyone put forth extra effort to ensure satisfied customers. In my next article, I’ll show you four other reasons you should encourage and depend on referrals.

The Actionable Points

Do you have?

1. Introductory pricing that invites customers to talk with you further.

2. Simple, tiered upgrades or additional products

3. Visible, constant reminders of those available upgrades and their benefits.

4. Frictionless upgrade paths.

5. An experience that rewards all customers along the path to “premium” status.

6. A plan to turn the positive customer experience into referrals (subject of a future article [3]).

Do you see how that works? Don’t just look at today’s sale as worth the $ it brought in today. Look at the value the sale may bring in future referral business and future upgrades with the present customer. Try to figure out what the potential referral is worth to you, and make sure to include that value in pricing and marketing decisions.

Notes

[1] This is not bait-and-switch. Bait-and-switch is when a product of advertised price is out of stock, or not suitable for your needs, or the customer is simply pressured or shamed into buying a more expensive product than what led them into the door. At Build-a-Bear, they are fine if you choose to stick with $10 as well because of the exponential value you have as a potential referral. I am in no way recommending you practice bait-n-switch. Your customers will not end up with the positive experience critical for this approach to work.

[2] Some companies fear scaring prospects away with price and so hide price until the last minute. I think in today’s marketplace, prospects expect to see pricing readily available and that you will lose more customers by hiding your price than by making it clear you have some basic pricing and that the best deals are available at a more premium price.

[3] Like real estate has its three most important factors; business growth has its top three as well: referrals, referrals, and referrals.

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