|Image courtesy of James Cridland|
What's that phenomenon all about?
In a nutshell, the answer lies in the value received (a) for the price paid and (b) relative to the competition or to alternative products.
How is value defined? Well, that's a good question. Straight from the dictionary, Merriam-Webster defines it, among other ways that aren't relevant, as: a fair return or equivalent in goods, services, or money for something exchanged.
My answer: It's defined however the customer wants to define it. Having said that, for customers, it typically has two components: quality relative to price or benefits relative to costs; ultimately, customers choose the option with the best cost-benefit ratio.
So let's go back to my original question about buying and leaving based on price. Here's what I see happening: Companies offer coupons, discounts, and other low-price strategies to get customers in the door. They even close the deal. But they can't deliver. And in the end, those loss leaders and pricing tricks to acquire more and more customers bite companies in the ass. Why? Because they can't deliver.
Why do I keep saying that? What aren't they delivering? Yup. Value.
How aren't they delivering? In the form of a dreadful experience.
They then become stuck in a never-ending, vicious cycle: Acquire. Churn. Acquire. Churn. Acquire. Churn.
Stop the insanity!
Is it stoppable? Can we get off this bus? Yes! How? Focus on the experience. The experience speaks for itself. The experience becomes your biggest asset. The experience reduces acquisition costs. The experience sells. And, most importantly, the experience retains. The experience delivers value and that, in turn, hits your bottom line, in a good way.
According to the American Express 2014 Global Customer Service Barometer:
More than two thirds of American consumers say they’re willing to spend 14% more on average with a company that they believe delivers excellent service.
Value means the benefit (far) outweighs the cost. And guess what? Customers will even pay companies to deliver a better experience! We've all heard this statistic:
81% of customers are willing to pay more for a superior customer experience, with 44% willing to pay a premium of more than 5%. -Oracle
But seriously, customers shouldn't have to do that. Instead, companies need to think value. Your customers are your customers for a reason. You sell a product or service that they want/need. Why should they have to pay extra for it to actually work the way it's supposed to? Or for your employees to be kind, helpful, and empathetic when customers call them. How are you ensuring that the benefits customers receive from you and your products far outweigh the costs?
Another Oracle report states: Businesses can lose 20% of revenue from poor customer experiences yet many are stuck in an execution chasm.
Ouch. They're not delivering.
How can companies help their customers realize (better) value? How do they get out of the buy-on-price-leave-on-price cycle? The obvious answer is to deliver a better experience, but they need to understand what that means. They need to understand that different customers have different needs and different expectations. They need to understand their customers. But, beyond that, what else is there? In a nutshell, get out of the price game. Get out of relying on discounts to do all the work for you. Get rid of hidden fees. Be transparent. Remind customers what they are getting for the price paid; sometimes they forget - sometimes they wish they could forget. Create and deliver quality products and services. Don't take advantage of customers. Don't treat your existing/tenured customers differently (read: worse) than your new customers, practically giving away products to new customers vs. gouging your tenured customers. Review usage history to ensure that customers are using the right product or are on the appropriate plan. To name just a few ideas...
That got me thinking about trust. And living up to your brand promise. And doing right by your customers. Imagine that. So stop selling and competing on price. Stop focusing on price. And start focusing on delivering value. The first step in doing that is to find out how your customers define value. Find out what value means to them.
Stay tuned. In the next week or two, I'll write about how discounts play into the price/value equation and how they impact or sabotage acquisition and retention efforts.
Value is more expensive than price. -Toba Beta, Master of Stupidity