The Magic of a Dollar
October 12th, 2010 by Bob Bly
It?s common knowledge that ?free? is the most powerful word ? and the most irresistible offer ? in direct marketing.
But can you guess the second-most powerful word or phrase ? and the second most irresistible offer?
It?s ?one dollar.?
Experienced direct marketers know that, at times, charging a dollar (or a penny) for something can be more effective and pull even better than the free offer. The old pros call this technique ?the magic of a dollar.?
Here is a great example of the magic of a dollar at work. It involves a company selling an accounting software package.
It was a good program, and the USP (unique selling proposition) was that the software was ?modifiable?: It was build on a popular database, so a user proficient in the database could modify program features, functions, and screens to fit his specific business. But direct mail packages selling the software barely broke even.
The software was priced as follows:
General ledger–$79.
Accounts payable–$49.
Accounts receivable–$49
Inventory control–$39.
Payroll–$39.
The total price for the complete package: $255.
One day, the company decided to test a new mailing. The outer envelope shows the pricing as follows:
Accounts payable–$1.
Accounts receivable–$1.
Inventory control–$1.
Payroll–$1.
This time, direct mail recipients paid attention. After all, who sells software for $1?
The Johnson Box of the letter repeated the pricing, but filled in the missing detail:
?Accounts payable–$1.
?Accounts receivable–$1
?Inventory control–$1.
?Payroll–$1.
?when you buy general ledger for $251!?
Notice that the price of the complete software system is the same: $255 total. The offer is just a change in semantics (both system prices are $255). But the new offer attracts attention by seeming to offer software at $1 a module.
Could you buy just accounts payable for $1? Yes and no. Yes, you could buy it. But it wouldn?t work, because the other modules all require general ledger to function!
?I hate the idea of this test,? the creator of the software complained. ?It seems like a cheap gimmick.?
But he didn?t hate the results: The ?$1 a module? offer outpulled the ?straight? offer by 10:1 in gross revenue generated. Mailing costs were identical, because the same package was used for both mailings, with only minor modifications to the copy for the $1 offer.
A variation of the magic of a dollar offer is the magic of a penny offer. Here, something is offered for a penny. In direct mail, this is particularly effective when you glue a real penny to the top of page one of the letter ? a real attention-getter.
You can use the magic of a penny for any offer where there is either a free premium, free trial, or free evaluation or estimate.
In your letter, you say a variation of the following:
?The [premium, trial, evaluation, or estimate] costs only a penny. And we?ve even enclosed the penny for you!?
Yes, it?s a gimmick, but it works.
Free, of course, is the industry standard offer. It?s easy to use, applicable in almost any situation, and almost always effective.
But the magic of a dollar or the magic of a penny can sometimes do even better. I suspect the reason is its rarity: Because dollar and penny offers are much less common than free offers, they stand out and get more attention.
That?s just a theory, but I have seen enough tests to know that dollar and penny offers can in fact work. Try it. You make like it.
This entry was posted on Tuesday, October 12th, 2010 at 1:05 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 12th, 2010 at 1:24 pm
As always Bob good advice. I especially appreciate you sharing the real world example of the accounting software campaign.
October 12th, 2010 at 4:34 pm
The great thing about pennies is that we all hate them. They collect in a jar, fall under the sofa cushions and generally make themselves useless. So I could imagine that giving prospects an opportunity to actually put one to work has its own appeal: “Want to actually get something for those pennies in your desk drawer?…”
October 12th, 2010 at 6:33 pm
Thanks Bob, always love seeing real world test results and pulling them apart to see what makes ’em tick.
I think the other reason the second offer won is that it just seems like a better deal. Like you’re getting a special deal on four modules.
People most likely don’t know what the “real” price of the software is — just watch the price is right to see how far off most people are — so they think it’s a good deal.
October 13th, 2010 at 1:17 am
Great advice. But I am thinking, is their perhaps some other amount that would work even better – perhaps somewhere in-between the two extremes of free/$1 and the real price?
If you say “free”, then many people immediately think “yea right, nothing is free”. And when you say “$1” followed by “…when you buy…”, some people might think you are being deceptive. However, if you have some other low amount (like $9 for example), perhaps people will think “what a great deal”.
Could this by any chance work even better? Or is the power of “$1/free” going to be more effective?
October 14th, 2010 at 3:47 pm
Great real-world results. Thanks for sharing.
I’m going to hazard my own guess about the higher response to this offer. Acknowledging that I know nothing about the target audience, it might well be that the $79 price for the general ledger leads customers to perceive it as not serious or capable business software. Adding to that perception, the cost of any two modules doubles the price and buying all four would more than triple it.
In the $1 per module test, the general ledger is positioned as being worth $251. If I accept that, then $4 more for all the modules is a bargain.
Great psychology at work here.
October 17th, 2010 at 11:05 am
Hi Bob,
Have you ever noticed that truth at times is hard to believe? Yet, with your clear example you show how “the magic of a dollar” is the truth in marketing.Who has not seen an ad saying pay $1 now for your $97 product?
Thanks for raising my awareness!!
August 31st, 2011 at 9:00 am
Haha! So true! And even iPhone apps cost $0.99! So it’s still a dollar!
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Thanks Bob, always love seeing real world test results and pulling them apart to see what makes ’em tick.
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Great advice. I really liked your example in relation to the accounting software.
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