Lower Prices Isn’t Always What Customers Want

There’s an interesting article in Harvard Business Newsletter about counting the cost of competing on price. Our group has done Customer Satisfaction research for many different companies in many different markets. A common assumption I hear among managers and executives is that their customers will be happy if they simply slash their prices.

The data often prove otherwise.

Customers may say, top of mind, that they’d like lower prices. Who wouldn’t? (Hey, I’m Dutch! Of course I want to pay less!) Nevertheless, when you dig into what really drives customers’ satisfaction and loyalty you will find that they are willing to pay more if they know the result will be a higher quality product or a higher level of service.

Your business can compete on three things: Product Quality, Service Quality or Price. You don’t have to be the cheapest when your customers understand that they will receive superior product, superior service or both.

Bottom line: It pays to do the research and know the mind of your customers.

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Flickr photo courtesy of Fueledbycoffee

  6 comments for “Lower Prices Isn’t Always What Customers Want

  1. May 9, 2006 at 11:34 pm

    Tom:
    Great point. I think that customers will pay a much higher point when they know what to expect, period. That’s the point of a great brand…it’s a promise or an expectation based on all the previous experiences with a company or organization.
    When a consumer knows what to expect, they don’t really care about the price because they already know the price, the quality, the service, the packaging, the delivery, etc.
    Does your research show the same findings at multiple price points? I would think it would.

  2. May 10, 2006 at 5:11 am

    Actually, Mark, it does. We’ve found the same principle holds true of electronic components that cost a fraction of a cent and large ticket items costing hundreds of thousands of dollars. Excellent point. Thanks for the comment!

  3. May 10, 2006 at 8:01 am

    Right on the money Tom – in fact, I just saw that Dell Computer was losing market share despite aggressive “pricing decisions”. I think their weak after purchase support (I have first hand knowledge of that!) is finally catching up to them. They just might be in that danger zone of “low price = low value”. Even the biggest companies can fail to understand the good logic of your post.

  4. May 10, 2006 at 9:42 pm

    Yeah, I always get a kick out of Dell’s commercials featuring young, clean-cut, all-American males taking tech support calls. Yeah, right. Thanks for the comment!

  5. June 16, 2006 at 12:35 pm

    Tom-
    I don’t mind the use of my photos, but can’t you link the thumbnail to my Flickr page? Seems kina rude to ‘steal it’ with no link.
    -Fueledbycoffee

  6. June 16, 2006 at 12:55 pm

    Completely my bad. I am going to rectify it right away. Please accept my apologies.

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