In my previous blog, Pouring profits, I posed the question: “How have you observed businesses capitalizing on (or forfeiting) opportunities to capture revenue and increase profit by offering customers enhanced service experiences?”

While the post received a fair number of clicks, there have been no responses to my question. Undeterred, I resolved to identify my own example and found one at my local Albertsons supermarket:

Albertsons offers two prices for fresh salmon in its seafood case: one price for unseasoned and another (higher) price for seasoned salmon. There is a valid reason for charging more for the seasoned fillets. Not only is it more convenient for the customer, it saves her from having to buy the ingredients required to season the fish.

Sure, offering seasoned salmon fillets for no additional charge would add value but it doesn’t make good business sense because there are labor and materials costs associated with seasoning the fish.

If I were advising Albertsons, I’d advocate charging more for the seasoned product and add value by offering a complimentary recipe for the “secret seasoning” at the store’s website. This way, if customers enjoy the seasoning but do not want to pay a premium for it at the seafood counter, they can purchase the ingredients to make their own seasoning—presumably, at Albertsons.

We know from the data that customers will pay more for enhanced service experiences: 13 percent more according to one survey.

Freebies are nice but you have a business to run. So don’t give it away when customers are prepared to pay.

Care to comment? It’s free!

I recall a story about Bill Marriott, Chairman and CEO of Marriott International, that illustrates the importance of timing.

Every summer, there is a professional golf tournament in the Washington, D.C. area that draws spectators from miles around.

Qualifying rounds for the tournament are held on the two consecutive weekends leading up to the official start of the tournament.

It was on these weekends that Bill Marriott’s enterprising young grandchildren set up a lemonade stand, selling cups of lemonade for $1 each to the spectators who came to the qualifying rounds to get a closer look at the golfers before the actual tournament began.

The weather cooperated and his grandchildren’s lemonade stand flourished. When the qualifying rounds ended and the official start date of the tournament arrived, his industrious grandchildren were there early to set up their lemonade stand.

Later, Bill Marriott arrived along with throngs of spectators. On his way to the golf course from the parking lot, he passed his grandchildren’s lemonade stand and asked them how their venture was doing.

One of his grandchildren proudly explained how they had set up the lemonade stand on the two previous weekends during the qualifying rounds in order to capture more sales than if they had only sold lemonade on the weekend of the tournament.

Marriott then asked, “And how much were you selling a cup of lemonade for during the qualifying rounds?”

The children answered in unison, “One dollar Grandpa.”

“And how much are you selling it for today?” he asked.

Confused, the children repeated, “One dollar.”

What he said next likely shaped the enterprising young minds of the Marriott grandchildren forever…

“The qualifying rounds have ended. Today is the official start date of the tournament. Raise your prices!”

The children increased the price of a cup of lemonade from $1 to $2 and made more money during the official tournament weekend than they made during each of the qualifying round weekends combined.

How about you? Is it time for you to capitalize—on a higher price, on a different market, on a unique product or service offering?

Don’t wait. Timing is everything.

I’m currently reading the book Smart Pricing by Jagmohan Raju and Z. John Zhang. Anything published by Wharton School Publishing has been thoroughly researched and applied in the real world of work—beyond the ivory tower of theory and abstraction often associated with academia.

In the book’s introduction, the authors present a simple concept: “A manager can pull only four levers to increase a firm’s profitability: sales, variable costs, fixed costs, and price.” If he spends more on advertising to gain market share, then he’s pulling the sales lever. By reducing hours to schedule and lowering payroll costs, he’s pulling the variable cost lever. If he’s able to negotiate better lease terms on space, vehicles, or equipment, then he’s pulling the fixed cost lever. The fourth lever, price, is pulled whenever prices are adjusted.

Though only four levers exist, there are some economic probabilities and consequences to consider that make the manager’s choice of levers more like a chess match. Conventional wisdom suggests that, in a soft economy, the most effective way to preserve profits is to reduce costs. With shrinking demand, increased competition, or both, most companies look to reduce their biggest expense: payroll. This results in the furloughs and layoffs we’ve been reading about (or experiencing personally) for the past several years…

Increasing sales is an attractive option but may be hindered by firms choosing to reduce their sales forces and/or marketing expenditures. And who really wants to tamper with pricing in such an uncertain economic environment?

I was surprised to read that the authors’ analysis found “that if a firm can cut its fixed costs by 1% without affecting its operations, its profitability can increase, on average, by 2.45%. Similarly, if a firm can increase its sales by 1% without changing its cost structure or price, the firm’s profitability can rise by 3.28%. The effect of lowering the variable cost by 1% is larger: Profitability can increase 6.52%. However, the effect of improving a firm’s price by 1% is the largest of all: 10.29%. Remarkably…this effectiveness ranking order holds for each of the eight industry groups using the standard industry classification (SIC) scheme.”

In my last blog post, I referenced a number of studies on the relationship between superior customer service and profitability. The latest study, by American Express and Echo Research, compiled research that revealed American consumers are willing to spend, on average, 9% more with companies that provide excellent customer service.

Do you see where this post is heading?

If companies took steps to improve the customer experience, then customer satisfaction would likely improve. Studies show that customers are willing to spend more with companies that provide superior customer service. And research finds that by adjusting the price lever and improving prices by only 1%, companies can increase profitability by 10.29%.

Companies with subpar customer service: It’s your move.

Earlier today, I stopped by one of those cookie specialty stores to pick up an order of one dozen cookies that had been decorated as pineapples. (In case you’re wondering, the pineapple serves as a symbol of hospitality and warm welcome.)

As I’m preparing to pay, the clerk said, “So that’s twelve cookies at $6.85 each… $82.20. Then two boxes at $3.50 each… $7.00. And…”

I interrupted, saying, “Pardon me. Did you say I have to pay $3.50 for each of the boxes?” She confirmed the charge saying, “If you want a regular box, there’s no charge. But we charge extra for this box because it is only supposed to be used for our gourmet cookies.”

I asked her, “How much do you sell the gourmet cookies for?”

She said, “Eleven dollars per dozen.”

Now, I’m standing there trying to reconcile the absurdity of what I had just heard and asked, “So if I were to buy a dozen gourmet cookies for $11, then you’d give me the box?”

She said, “No. That box is only used for two dozen gourmet cookies.”

“Okay.” I said, “If I were to buy two dozen gourmet cookies at a cost of $22, would you give me the box?”

She said, “We sell two dozen gourmet cookies for $22. If you want them in the box, the cost is $33.”

She said all of this with a straight face.

I collected my thoughts and asked her one final question of understanding which I prefaced with: “Okay, just so that I have this correct, I could buy two dozen gourmet cookies in a bag for $22 and also buy the box for $3.50 totaling $25.50. Or, I could buy two dozen gourmet cookies in the box for $33 and pay $7.50 more. Is that right?”

While she acknowledged that my math was correct, she would not acknowledge the lunacy of their pricing model. Instead, she justified it saying, “It’s corporate pricing. We don’t have anything to do with it.”

In the end, I left having paid $88.86—which included the price of one dozen decorated cookies plus tax. She grudgingly parted with two gourmet cookie boxes with lids.

I’m certain she’s told anyone who was willing to listen about this cheapo customer who came by the store to pick up his order and balked at paying a measly $3.50 for a gourmet cookie box.

She may have even suggested that, since this customer doesn’t even work in the cookie business, what right does he have to challenge their pricing policies? Silly customers. When will they learn their place?

Well, I’ve learned my place. The next time I’m looking to spend $88.86 on a dozen decorated cookies, my place will be their competitor: Cookies in Bloom on University Blvd. here in Denver.

I’ve already called and confirmed they don’t charge extra for boxes.