Why price matters and how it is tied up with marketing, service and customer experience

In a recent post, I wrote:

“Bob Thompson shared the results of research he had been involved in some years ago.  When customers were asked what constituted ‘customer-centricity’ they came up with:  product quality/fitness for purpose; customer service excellence; being treated fairly; and price.  Bob made a big play, as do others, about price only being fourth on the list.  I will be writing a post on the price myth soon.”

Can you count on customers to tell the ‘truth’?

Before we can grapple with the ‘price is not that important, other stuff is more importantmyth we have to grapple with the customer/market research myth.   Why?  Because the people who make customer related claims – including on the matter of price – almost always refer to the results of customer surveys and market research.

Research simply discloses how a specific bunch of people responded to/answered a set of questions given the way that these questions were worded/framed and how/when the research was conducted.  ‘That is it – that is all it tells you!  You cannot use it to make declarative statements of ‘truth’ about what matters to customers nor what they actually do when they are shopping in the real life shopping environment. Even if we assume that all bias has been stripped out of the surveying/research process we are confronted with this:  people deceive themselves whilst being convinced that they are espousing the truth – neuroscience suggest that this is a fundamental feature due to the design of the brain, which is really many brains in one.

Asking about price, and how much it matters or not, is like asking about sex.  Why?  Because the question is laden with meaning which puts one’s identity, self-esteem and ‘social face’ at stake.  If you are a woman and answer that you have had many partners and love sex then you are likely to be thought of as being ‘loose’ and looked down upon.  And you, the woman that is being asked that question know that and so you modulate your answer – you lie.  Now imagine that you are a man.  How likely are you to say that you have had no sex at all in the last three months?  I recently took part in a speed awareness course where only 2 people out of 23 claimed not to be ‘better than the average driver’  Was it because most of us in that room (including me) are deluded or is it some of us were not willing to admit that we are not good drivers in front of our fellows?  Possibly and most likely both.

First the price question will be answered differently by different segments and you cannot average it out – to some people it might matter a lot, to others not at all. Second, there will be a ‘right’ answer (socially desirable) given the current circumstances – have you noticed how thrift is in and conspicuous spending out?  Third, what people say (and even think they do and what matters to them) is often very different to what is so.  And even when you educate them on what is so they tend to ignore it – they were blind to it for a very good reason.

In short,the scientifically correct thing to do is to be skeptical about what people say: you simply cannot count on human beings to have accurate insights into themselves or their behaviour.  And you cannot count on them to tell the ‘truth’ as it shows up for them if their ‘social identity’ is at stake.

What is our relationship to price?

Take a look at what is happening on the high street. We go and try out products and get advice in stores and then go home and buy it online because we can get the same product cheaper.  Is this why so many stores have closed in the UK and why high streets are littered with empty or boarded up shops?  Remember Gateway?  The  online PC seller who opened stores and designed/delivered a great shopping experience?  It ended up closing the stores.  Why?  Consumers tuned up at the stores got great advice and then they went home and bought online from Dell because Dell was cheaper.  What was the fear with the internet?  Ease of finding/comparing prices.  Why?  Because it would enable buyers to buy from the cheapest seller.  Why do offline retailers fear smartphones?  Because they enable shoppers to compare prices and either buy it online (cheaper) or head for a store down the street that supplies the same product at a cheaper price.

Look at Ryanair and Easyjet – these low cost airlines exist because they have come up with a low price value proposition for air travel that speaks to people whose first and foremost requirement is price – cheap.   Look at IKEA – it had done the same for furniture.  Then there is WalMart in the USA and Matalan in the UK – doing very well by selling merchandise at value prices.  In short these players are doing well because they are playing the price card well.

Price can also be an indicator or quality and thus assuage our concerns about being swindled/making the wrong choice.  For example, experiments show that if you have a high end product and a low end product then you can do better by introducing a ‘in between product’ in terms of price.  When you do that what happens?  You make more money because you help people to buy.  Most people will buy the ‘in between’ priced product – these people fear buying the ‘cheap’ products (quality concerns) and are not up for buying the top priced product.  Note: it is essential that the shoppers is uncertain about the quality of the products for this behaviour to show up.

What is my point of view on Price?

I say that price does matter especially in the current economic climate.   We are all sensitive to price – our sensitivity depends on our sense of our financial well being.  It depends on current savings, current income and how we see the future. If our income/savings are low then we will be price sensitive.  Last summer I spent some time in the New Forest and in particular in a locale where only the rich can afford to live – property price are high.  Yet, I was shocked to see busy ‘cheap stores’ nestled in amongst the expensive stores. Then I got that there are plenty of old folks who have retire in this locale.  They have used their savings to buy their homes and their incomes are limited and so they use the ‘cheap’ stores.  Finally, the future matters, if the future looks bleak then we are more price sensitive than if the future looks bright.

I say that we will not willingly pay more than we have to for the same product if all things are equal.  A great example of this is insurance – most people buy on price as they assume that all companies, all policies are alike.   Only those that have made a claim, become wise to and factor in what the policy covers and the claims experience.  That means that if store A wants to charge us more than Store B  for an identical product then the people at store A have to invent differences and communicate these differences so that the customer can justify paying the higher price.

The central challenge of business continues to be inventing differences – real and imagined – so as to get the customer to pay a higher price than s/he would otherwise pay.  The factors that companies have to play with are: product and product development; marketing and the art/science of impression/perception management (notice the interest in neuroscience and neuromarketing); service (not the function called Customer Services) and in its broadest/modern sense Customer Experience; and business model design – what you charge for, how you charge….  Apple does it through great products.  Zappos does it through great service. Amazon does it through the ease of the purchasing process.  USAA does it through the ‘community’ and ‘integrity’ and ‘service’.  Zane’s Cycles does it through the customer experience and ‘community’………

Put differently, the justification for investments in marketing, in service, in the customer experience are based on counteracting the buyers propensity to buy on price if all things are equal.  That means that the purpose of marketing, service, customer experience is to ensure that all things are not equal in the minds of buyers.  Manipulating perceptions – the role of marketing – used to be enough because only marketer had access to media. Media exists to shape minds – always.  Marketing no longer works that well due to the democratisation of voice. Which is why there is pressure to actually be different: stand out products; stand out service; stand out customer experience. This requires a fundamental change in organisational behaviour: investments have to move from marketing (impression management) to the product and/or the operations that enable buyers to buy, own and use the product.  Few organisations have made that shift in priorities and spending.  Which is why so much customer talk is simply empty talk.  Now compare that with the companies that stand out in terms of product-service-customer experience: do you notice that they don’t spend anywhere near as much on marketing as their competitors?

What is the good news?  Whilst price matters it is not the only thing matters.  Our dignity matters to us – we are selves who are aware of ourselves and who are driven to relate to ourselves as worthy/important/as mattering.  And this need is as important as the need for a ‘good deal’.  As such this provides an opening for organisations who honour our need for validation, for dignity, for wanting to feel there are good guys out there and that we live in a ‘good’ world.  Which is why companies like Zappos and Zane’s Cycles are doing well – they charge premium prices in turn for honouring us ‘as the best of ourselves’ .  And enough of us are willing to pay the premium price and talk about these companies as if they are our friends.  Because they show up for as being our friends.  Amongst friends, price is not the most important thing, it is trust, it is looking after one another, it is acting equitably/fairly.  It is giving a helping hand now, in the full knowledge that our friend will be there when we need that hand in return.  As and when that expectation is violated by our friend/s then we speak out – think Netflix.


Thinking strategically about customer experience: the 5 components of customer value

How do you think about Customer Experience?

In my view too many people are thinking about Customer Experience tactically.  Or put simply: too many people are thinking of Customer Experience in terms of making changes to the interaction channels.

Being a strategist, I prefer to think strategically and have been looking for a way that helps me to do that when it comes to:

  • Attracting and keeping customers; and
  • Thinking about, organising and executing Customer Experience.

So how do you attract and keep customers?  And how should you think about (frame) your customer experience efforts?  I assert that the answer to both of these questions is the same: create superior value for your customers and keep doing it continuously.

Which begs the question: what is ‘value’ from a customer perspective?

Fifield: customer value equation

One of the most useful frameworks that I have come across is the one developed by Paul Fifield (by building on some work done by Osterwalder and Pigneur) in his book Marketing Strategy Masterclass.

  • Value = Benefit – Effort – Risk – Price

Maz Iqbal: customer value equation

If it was OK for Newton to stand on the ‘shoulders of giants’ I am more than happy to steal from Professor Fifield.  Yet, I believe that Prof. Fifield’s equation neglects a critical piece of the puzzle.  So I have added it in and thus my equation is:

  • Value = Benefit – Effort – Risk – Price +/- Treatment

Let’s take a closer at the six elements of this equation.

Value

The first point to make is that value does not reside in the product or service that you offer.  Value is in mind of the customer.  Put differently, customer value is the value that each individual customer perceives in:

  • what you are offering including any implied or explicit promises; and
  • getting the job done in the way that you are proposing in your offer.

This means that ‘value’ will occur differently to different customers.  So a customer who is housebound is likely to value the home delivery of their weekly groceries very differently to another customer who is able to and enjoys visiting her local supermarket.

Finally, it is worth stressing that ‘value’ from a customer perspective is much more than price.  And it certainly is not about being cheap.  Recent wine tests have shown that in blind taste tests customers rate the same wine differently: if the wine is priced cheaply then the wine is rated as being of an inferior quality even though it is exactly the same wine in the same bottle!

Benefit

Your offer must promise and deliver the benefits that the customer is looking for.  One way of thinking about this is in terms of the job that the customer wants done and the outcomes he desires.  The closer you offer is to the perfect solution for the job and the desired outcomes, the more benefit it deliver and the more value that you create for your customer.

Clearly, each customer will have a different perception of the importance of the job, the perfect solution and the value of that solution. To make this manageable you must segment your customer base into distinct customer segments.

Effort

Customers have been conditioned to want ease and convenience.   I would go further and say that ease and experience are so important to us that once we have found a supplier that delivers this we stop looking for other suppliers.

The desire for ease and convenience spans the process of finding, evaluating, buying, taking receipt of and using the product or service. This means that the organisation needs to pay attention to more than the product or service.  It needs to pay as much attention to interaction and distribution channels as it does to the product or service.

It is worth noting that real value, from the customer’s perspective, is only created in the usage process.  Too many suppliers neglect to pay sufficient attention to the customer’s actual usage process.  So they fail to come up with solutions that minimise the effort of using these product or service.  This is an area in which Apple has excelled and made its fortune.  Now compare Apples attention to detail (as regards the user experience) to this: How “wrap rage is hurting the customer experience”

As Fifield says “Generally, there will be greater customer value attached to those offerings, where the organisation has spent time, research, effort and insight into finding new ways of making the old jobs easier.”

Risk

The greater the level of risk that the customer sees in you the vendor and your offer, the lower the perceived value of your offer.

The perceived risk is much higher when the customer has a lack of knowledge and prior experience in how best to get his job done.  And in particular how to judge the expertise of the supplier and the quality of the offer.

It is worth noting that risk is always present: usually at a subconscious level.  Customer are particularly sensitive to things that can go wrong and which make them look stupid in their own eyes (self-esteem issue) or in the eyes of others (social standing).  It is the reason that advertising is not dead, will not die and why established brands do well despite doing poorly on other elements of the customer value equation.  We are risk averse and stick with the devil we know;  brand recognition matters – ask anyone who does not have an established brand.

Price

In some ways this is one of the more complex components of the customer value equation.  Why  Because it is not as simple as the price being too high.  From a customer perspective, it cover the following aspects:

  • Price being too low (wine example under Value heading) and thus leading the customer to think that the offer is of inferior quality or not fit for purpose (increasing the Risk component of the Value equation);
  • Price being too high;
  • Seeing the same product cheaper somewhere else;
  • Depreciation in value – how fast the resale value of the product will fall;
  • The time/effort trade-off in searching for the lowest price;
  • Buy now or buy later when price falls etc

Treatment

Treatment recognises that customers are people and as such the place a value in how they are treated as human beings.  Put differently, customers put a high value on ‘service.  In particular, they prefer to do business with organisations that leave them feeling ‘valued’.

I have placed a +/- in front of the Treatment component because if customers are treated well (especially by the employees of the company) then it make a positive contribution to customer value as perceived by the customer.  If the company fails to do that then the Treatment component becomes negative and decreases the value of the rest of the offer.

Two companies that excel in the Treatment component are Amazon and Zappos. Here is an example of the kind of impact this has on the customer:  “Great Customer Service Build your Revenue and Brand: My Amazon Experience”


2011: are you ready to move beyond the 4Ps and the 4Cs to embrace the 5Hs?

In the period of 1950s the concept of the marketing mix was introduced and this led to the birth of the 4Ps: Product, Price, Place, Promotion.    This has been extended  to include another 3Ps: People, Process, Physical Evidence.

With the birth of the Customer age in the 1990s Robert Lauterborn proposed the 4Cs: Customer, Cost, Convenience, Communication.  Whilst this is a move in the right direction it is not enough.   To my mind it smacks of the abstract, the intellectual, a machine way of thinking and talking.  A move forward yet still within the Newtonian paradigm of the universe (including human beings) as a gigantic clock.

How about embracing the 5Hs: Human, Heart,  Honesty, Hospitality and Harmony?

Human:

Get that you are dealing with flesh and blood human beings and treat your customers as human beings.  Strive to treat them with the best of our humanity: kindness, benevolence, humaneness.

Being human, we notice, even if it is at a subconscious level, when these qualities are present or not.  Given the choice we walk towards organisations that have a human look and feel:  that are humane and treat us as human beings not machines.

How about starting with a small step that makes a huge difference: speaking with a human, conversational, voice?

Heart:

As the expression goes “Have a heart!”.  What does that mean?  In a word it means compassion.  The ability and willingness to put yourself in the shoes of your customer.  To see life through her eyes, to experience what she is experiencing.  It means following the golden rule “Treat your fellow man/woman in the manner in which you would like to be treated if you were in his/her shoes?  Go further and embrace the platinum rule “treat your customer as he/she would like to be treated”.

How about following Zappos and making it easy for your customers to reach out and speak with you?  To reach out to you – via chat, click to call etc – when she is shopping and needs guidance or reassurance?  To reach out to you when she needs help in using your product or service?

How about making it easy for customers to make complaints?  How about making it easy to return faulty goods?  And so forth.

Honesty:

Let go of the spin and be honest with people in a tactful way.

Human beings stay clear of people who they find to be dishonest.  When you are honest I may not like what you say yet I will respect you for being honest.  Tell it as it is – upfront – it will save you a lot of pain later on: sooner or later your true colour will show especially in this densely connected world.  When I catch you being dishonest (including omitting stuff that you do not want me to know) then I no longer trust you.  If I don’t trust you then you are going to have to pay in way or another if you want to do business with me.

Put bluntly put as much focus on the steak – the product, the service, the reality – as you do to the sizzle of advertising and other marketing messages.   Another way of saying this is to say ensure that there is a harmony between the sizzle and the steak.

Hospitality:

Be a good host, be hospitable – to prospects, new customers, existing customers and customers who have either left or are on their way.

When you are being a good host you take the time and trouble to think of your guests and their needs.  You do your best to welcome them, to make them feel at ease, to introduce them to people that they will find interesting or useful. And when the time comes for them to leave, a good host will see them to the door and wish them well and mean it!  How about behaving the same way with your prospects, new customers, existing customers etc?

How about inviting your customers into the business?  To listen, to share, to collaborate on new product ideas, product development, marketing communications, customer services and so forth?  Incidentally, the important part about ‘social media’ is not the media, it is the social.  In a social environment your character, your reputation and your manners speak so loudly that few listen to your words.  A good host is mindful of this and acts accordingly.

Harmony:

As human beings we love harmony and we strive after it.  Harmony is pleasing as it gives us peace of mind.  So how about focusing your efforts on creating harmony?  What does that mean in practice?  Lets take a look at the dictionary definition: “the just adaptation of parts to each other, so as to form a complete, symmetrical or pleasing whole”.

How about a harmony between the promises made and the experience delivered?   How about orchestrating harmony between all the silos that impact the customer experience?  How about harmony between the short-term and the longer term?

It is my belief that if you don’t get the social part – that is the human desires for beauty, for meaning, for connection, for honesty…. – you are going to be increasingly lost in the 21st century.    Maybe I am deluding myself.  What do you think?