Price Slashing Exposed! Low Prices Don’t Mean Better Value


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When we meet new clients at our customer experience consultancy, they often tell us they create value for their customers by offering low prices. They think “value” means “price,” and they believe that customers want to save money more than anything else.

There are two major problems with this kind of thinking.

First, it doesn’t take an economist with an Ivy League degree to see that cutting prices can only go so far. You reduce your price by 10 percent. Your competitor cuts theirs by 15, so now, to keep your customers, you must reduce your price another 10 percent. This is the classic “race to the bottom,” and eventually you will reach a point where you can no longer cut your prices without losing money. By then, you will have established an expectation of low prices AND you will still need to find other ways to add value and stay competitive. The problem is, your profit margin is now so low that it’s hard to find the money to improve other areas such as customer service.

The second problem with the price=value equation is that it’s simply not true. Research has consistently shown that price is only one factor that customers consider in determining value. And most of the time, it’s not the most important consideration.

The Emotional Signature

Twelve years ago, we studied emotions and customer spending habits to learn which emotions had the greatest influence, and how that influence played out. We learned that price is never the primary factor influencing whether and how much a customer spends. Instead, we discovered that there are clusters of emotions that can drive a customer in different directions. Our research led us to develop a tool called Emotional Signature that shows how an organization engages emotionally with its customers.

The ‘destroying cluster’ lurks at the low end of customer emotions. It includes irritation, stress, anxiety and dissatisfaction – feelings that are apt to send customers running for the door. Customers who feel these emotions spend less and are less likely to visit your business a second time.

At a better spot in the spectrum are emotions in the “attention cluster.” When customers feel interested, exploratory and energetic, you’ve gained their attention. This makes them more likely to spend money, though “attention cluster” emotions still only lead to short term spending.

Your goal is to have customers in the ‘recommendation cluster’, or better yet, the ‘advocacy cluster’. The people in the ‘recommendation cluster’ feel cared for and valued, and they trust your company enough to recommend you to a friend.

Customers in the ‘advocacy cluster’ are your true fans. They don’t just feel valued, they feel happy and pleased. They will return to your place of business AND they will tell everyone they know about you. They may mention you in social media posts and may bring their friends the next time they come in. These advocates act like informal marketing representatives, expanding your reach and your reputation simply because you made them happy.

It’s the little things that make a difference

One of our most interesting findings is that you don’t have to invest in grand, expensive initiatives to make customers happy. Your customers are actually more likely to look for and appreciate the little things.

For example, when we reviewed comments from hotel guests, we found out they weren’t looking for expensive big-ticket items like a gourmet restaurant or big screen TVs with high end sound systems. They wanted simple things, like reliable internet, shampoo placed in the shower instead of by the sink, and a way to know that the room had been cleaned.

These little things send subconscious signals to customers that a company cares about their needs. Research by Market Metrix, a business that helps companies in the hospitality industry improve their guest experiences, showed that the top two things that drove value for hotel guests were adequate lighting in rooms and reliable internet access.

By providing customers with the features and amenities that are most important to them, you show that you care about what they want and need. And you don’t have to cut your prices in the process.

Putting it Into Practice

Here are tips for adding value to create happy and pleased customers in your organization:

  • Do the little things right. Free internet isn’t a benefit if it hardly ever works. Think of what would truly please your customer and then take the time to provide it in the right way.
  • When choosing how to add value, pick things that complement your services and that will make you stand out from your competitors.
  • Put yourself in your customer’s shoes and think of what would make you happy and pleased. Little things like smiling employees, appealing displays and pleasant music can go a long way.

Next time you’re tempted to cut prices, try something else instead. Look for one small change you can make to improve your customer’s experience. And watch what happens. You may find your customers coming back for more, even though they’re not saving a cent.

As a customer, what do you value most? Let’s talk about it in the comments box below.

Republished with author's permission from original post.

Colin Shaw
Colin is an original pioneer of Customer Experience. LinkedIn has recognized Colin as one of the ‘World's Top 150 Business Influencers’ Colin is an official LinkedIn "Top Voice", with over 280,000 followers & 80,000 subscribed to his newsletter 'Why Customers Buy'. Colin's consulting company Beyond Philosophy, was recognized by the Financial Times as ‘one of the leading consultancies’. Colin is the co-host of the highly successful Intuitive Customer podcast, which is rated in the top 2% of podcasts.


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