Over the past decade or two, we have all received countless emails from financial institutions reminding us to beware of emails requiring our account info. Despite those warnings, the same financial firms also send emails with clickable links. Once you click a link, you are required to provide your login and password. The process does not reinforce the message.
Recently I received an email from Charles Schwab asking me to confirm something. There was a link, but also a description of where to find the confirmation on the Schwab website without clicking the link. Unfortunately those instructions were not correct, so I called Schwab to get the correct instructions. I suspect most people would simply click the link. The point of all that is even though the banks’ message to customers emphasizes safety, their processes do not reinforce their messages, and often contribute to undesired behavior.
That same reinforcement of undesired behavior can happen with pricing, and it is critical to make sure your pricing and sales actions encourage the customer behavior you want. Let’s think about some examples.
Consider retailers who would like customers to pay full price, but regularly offer huge discounts. If you have ever purchased anything from Omaha Steaks or Jos. A. Bank, you probably receive at least one email per day from them. The emails I receive from them usually offer 50% to 70% off something. If those emails were rare, I would interpret them as efforts to reduce inventory of a few things. Since I receive them daily, I interpret them to mean the regular prices are irrelevant. If I want something from them, I will wait until it is discounted, I will never buy anything at full price from them.
In the B2B world, customers regularly ask vendor sales people if they can “do any better with the price.” Sales people who reinforce their company’s value message don’t respond by discounting. They respond by reiterating the value provided by their firm and explaining that the quoted price is a good price. They may also offer to help their customer save money by switching to a less-valuable product or removing some elements of service in exchange for a lower price. Sales people who do respond by discounting are teaching their customers they can get lower prices anytime they ask, and they are failing to reinforce the company value proposition.
We have worked with B2B clients who really were considered the premier provider in their industry in terms of the quality of products and services and the efficiency of doing business with them. Their growth rates and very strong customer perception surveys all pointed to them as the best. Unfortunately they still had some sales people whose initial question to potential new customers was “How much are you paying your current vendor?” That sales question does not reinforce the message that they are the best and deserving of a premium price. It says, “We compete on price” and “You shouldn’t pay more for us.”
Do the discounts you offer to customers increase significantly at the end of a quarter or year? If so, you are likely undermining your value message to your customers, and training them that with patience they will receive a lower price. We have worked with multiple clients who were adamant they did not compete on price; they provided superior products and services and sold at premium prices. When we analyzed their data, we observed that prices were much higher early in the year, but discounts increased (prices decreased) late in the year. Those late discounts were offered in order to hit their sales targets, but they taught customers to ignore the premium prices and wait until the company got desperate. Those late discounts also became a habit.
Now consider Amazon. Although they started with lower prices and built critical mass that way, their value proposition is now convenience and the benefits of using the entire ecosystem. If you compare prices on Amazon’s website with other retailers, you will likely find comparable, not lower prices. However, Amazon is simple and convenient with their One-Click ordering and Prime Next Day or 2-Day delivery. Their actions and messaging are consistent.
I started this blog post talking about the inconsistency between how banks say they want customers to behave and what their actions encourage us to do. In all aspects of business, if our processes don’t support the behavior we want, we will not get that behavior. This is especially true in pricing. Make sure your pricing and sales processes reinforce your value message, and don’t encourage wasteful discounting. Your P&L will thank you.
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