In a recent discussion about customer experience that had been lively and provocative, the room went silent when the topic of pricing surfaced. That was not surprising, as it’s easy to anticipate that a low point in most customer experiences involves the discussion of prices. Even ads for car dealers have focused on the ways in which they’ve taken trauma and tension out of the purchasing experience, alluding to the industry’s tradition of unpleasantness during price negotiations. And the competitive environment of recent years has probably added to the difficulty that exists in coming to agreement on price. We have all heard quotes like the following. “The only way we got people into our store over the holidays was with massive discounts.” “My customers had to go down market during the recession, and they aren’t moving back up.” “We keep losing share to private labels in the Big Boxes, all due to price.”
While the above challenges are solidly based on reality, making pricing a daunting topic, firms that proactively manage pricing strategy with the right tools in place can produce significant top- and bottom-line results. A point gain in realized prices can yield a much larger proportional improvement in profits. And the evidence is strong that there is a strong correlation between margins and negative customer experiences – and that correlation goes the wrong way. Firms pay a price when the customer experience turns negative when the topic of price arises.
In my work with clients on pricing, two themes have emerged that can help to translate pricing into a positive element of the overall customer experience. The first lesson is well-reflected in a quote from Warren Buffet: “Price is what you pay. Value is what you get.” Over and over, observing the flow of the sales process, the focus on value disappears when the discussion turns to price. It is almost as if a gate has slammed shut, closing off all the valid reasons that had previously been communicated to the customer when the discussion shifts to price.
One of my clients has used a tactic of responding to customer requests for lower prices with an almost immediate offer to move down the Good-Better-Best spectrum to the product that matches the price request made by the customer, carefully pointing out the tradeoffs that are implied by that choice. This tactic, in his opinion, allows him to show respect for the customer’s price request, but at the same time allows him to focus on the value contributions associated with the high-priced product first and foremost. He believes that by doing this, he is able to link value and price in the mind of his customer. And, as one additional benefit, he believes that this approach allows the focus of the customer experience to return to the positive themes associated with the value being delivered. Another client emphasizes in its sales training programs that not every price challenge is a real threat. There are segments and customers in just about every market that are willing to pay for product and service superiority. This firm emphasizes that remembering – and, more importantly, reinforcing – the non-price advantages that they offer can enable their sales team to avoid unnecessary participation in the vicious cycle of price-based competition. One of their slides reads “Don’t discuss price. Discuss value.” It is a good message.
Still another firm successfully introduced a premium price product into an incredibly challenging market by implementing a strategy that “gave customers an option that they could refuse.” That strategy offered the best of both worlds – the firm didn’t take a major risk because it continued to offer a low-priced option, but it gained upside potential from customer segments that wanted more and were willing to pay for it. Their marketing program emphasized the value associated with the high-priced option, and implicitly told customers that the decision on price was theirs, that they could go either way, and that they would get what they paid for.
Several years ago, Charlie Peters, Senior Executive Vice President and a member of the Board of Directors of Emerson, gave the keynote address at a meeting of the Professional Pricing Society. His presentation offered many insights and actionable suggestions, gained from his experiences as the pricing czar at Emerson. But the cornerstone of his advice, which he returned to time after time, was that the key to success in realizing attractive prices was delivering value to customers. It is a message that should always be at center stage.
In industry after industry, I have seen examples of firms that were able to realize premium prices by learning of the unmet and poorly met needs of their customers, and responding to them. One client with whom I worked several years ago started off a discussion by lamenting that the product line is question involved a stable and well-understood technology, some of the best companies from three continents, and little opportunity for innovation. I asked him if that view was shared by the customers who bought that product, and his response emphasized the high levels of satisfaction that were reported in survey after survey. My follow-up question was whether those surveys had ever asked for a “wish list” not presently offered by those in the market, and the response was that had never been asked. When we subsequently did ask that question, the results were surprising. While about 60% of those that answered did not suggest items on their wish list, the remaining 40% had wish list requests. Two of the wish list items most frequently mentioned were not only feasible additions to the product line, but were relatively easily implemented.
“Create value to capture value” is an enduring lesson, one that if remembered can help to ensure that the discussion about pricing becomes a positive element of the customer experience. If your firm is delivering value to your customers, you can be rewarded for it, through a price premium or otherwise, and customers can be comfortable with that fact as long as they see the linkage between value and price. The examples and suggestions above have returned to this theme over and over, deliberately. Creating value is the route to making pricing a positive experience.
The second theme that emerged in research on how pricing fits into the overall customer experience addressed a different dimension of the overall customer experience. And it is, once again, something that can be managed so as to avoid problems. In many interviews, what I heard from customers was that it was the pricing process, not prices per se, that had triggered negative reactions. Such comments weren’t reflecting more instances of the old-time car sales environment. Rather, they reflected frustration over delays, approval processes, duplicative paperwork, information gaps, and other ways in which the customer is “run through the gauntlet” in order to make a purchase. In one interview, a customer of one of my clients gave the following advice: “If there was one thing I’d tell [your client], they should try to buy one of their own products. It’s a nightmare if there is any complexity whatsoever to the transaction. We love their products, but hate to do business with them. I don’t know how to fix this, but I will tell you that it’s costing them sales.”
Pricing processes are an important part of the customer experience, and if the customer is put through the wringer, that can be the element that is most remembered. In one recent project, I had the opportunity to interview purchasing executives that had shifted a meaningful portion of their buys to Internet-based suppliers, including some of the new providers like Amazon Supply. What I heard, over and over, can be summarized in a single phrase: “easy to do business with”. I certainly heard comments about the breadth of the product lines that were available, strong logistics, and low prices, but the “easy to do business with” theme was the one that was communicated with feeling and was typically the first dimension of the experience that these purchasing executives mentioned. Pricing processes that are a positive part of the customer experience will become a more and more important differentiator in the future, as such Internet-based competitors grow and enter into new markets.
Pricing will always be part of the customer experience, and ensuring that it is a positive part will become more and more critical. Firms that take a proactive approach to pricing and find a way to explicitly link price to the value delivered to their customers are going to be rewarded. And pricing processes that are customer-friendly and that value the customer’s time are ones that will increasingly become “table stakes” for many suppliers. The rewards from making pricing a positive part of the overall customer experience can be enormous.