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Wednesday, July 6, 2022

How to Stop Customers from Fixating on Price by Ajay K. Sirsi * [40]

 

In business-to-business settings, I often hear managers making unsubstantiated statements such as: 

  "We are too expensive"

·          " Our customers are so price sensitive"

              "All that our customers care about is the price”

             " We are pricing ourselves out of the market”

·          " Lower-priced competitors are taking business away from us”


These “truths” are often spoken in tones bordering on hysteria and hopelessness.  In this article, I will show you that these statements are not only false; rather, these myths take on a life of their own and become part of the organizational narrative, sapping business prosperity. 

I was at a shopping mall on the weekend and noticed something interesting.  All the high-end stores (read: expensive) had velvet ropes at the entrance, stopping customers from entering.  A hostess stood by the door, putting shoppers' names on a waiting list to enter the store.  I overheard one of them say to a shopper that the wait was 45 minutes.  At each of these high-end stores, the lines of consumers snaked around the corner, with shoppers waiting patiently to get in.

None of the middle-of-the-road brands (read: inexpensive) had such an arrangement.  Nor did they have any line of consumers waiting to get in.

The data show that consumers are spending money on high-end brands.  I asked myself what these expensive brands do to make consumers not care about price?  The truth is that these consumers are price insensitive because they receive benefits in exchange for the price they have paid.  These benefits are tangible (quality product) and intangible (prestige and status).  The high-end brands have done an excellent job of creating and communicating these benefits to their target customers.

Why can we not do the same thing in business-to-business markets?   

First, let me destroy a firmly entrenched misconception.  While it is popular to proclaim that all that customers care about is price, the research does not support this claim.  The research reveals that in B2B markets, price is never the most critical factor.  While price is not unimportant, customers prioritize other factors such as quality, delivery, reliability, after-sales service and support, and trusted partnerships.

Therefore, if a customer is fixated on price, it should tell you that you have done a poor job of creating and communicating the value of your offering.  Either your offering does not have the benefits desired by the customer, or you have done a poor job of communicating the value you are providing.  Let me add details to both points.

Creating Customer Value

In business-to-business situations, it is easier than in B2C markets to develop benefits for the customer.  In B2C purchases, some benefits consumers seek might be pretty nebulous.  These might include notions of status, prestige, and one-upmanship – factors that typically are not considered by B2B professionals (I have seen instances where these intangible factors are dominant even in B2B markets, but I will save that for a future article). 

Creating customer benefits is more straightforward in B2B markets because, in this space, customers only care about two things: reducing their costs and increasing their revenue.  Nothing else matters to them.  Every customer need and pain point falls into one or both categories.  Please review the table below to get a sense of the point I am making here.

 

Impacts Customer’s Cost

Impacts Customer’s Revenue

Purchase price

X

 

Availability of spare parts

X

X

Shortage of labor

 

X

Retaining employees

X

X

Operational efficiency

X

 

After-sales support

X

X

Supply chain issues

 

X

Building a brand

 

X

Getting more customers

 

X

I think you get the point I am making here. TBO, not TCO

To create value for the B2B customer, go beyond conducting a Total Cost of Ownership (TCO) analysis.  Instead, perform a Total Benefit of Ownership (TBO) analysis.  A TCO analysis only considers the customer’s total cost by incorporating the customer’s costs of acquiring, possessing, using, and disposing of your products.  A TBO analysis, on the other hand, combines both the costs and benefits the customer accrues from your product.  Read the related articles suggested at the end of this article for excellent examples of creating customer value.    

Communicating Customer Value 

Creating customer value in itself will not make your customers price insensitive.  The final step is to communicate the value you have created.  To do this, you must focus on quantifying the value you have created and providing tools to your sales force to communicate the value.

Value Quantification

It is not enough to tell a customer: “Our product is superior.”  Instead, say to the customer: “Our product lasts X% longer than the competitor’s; it consumes Y% less energy, and it enables you to do Z% more jobs in the same amount of time.”  Of course, these assertions must be based on unbiased data.  

Finally, provide your sales force tools to communicate the quantified value propositions quickly and easily.  I am surprised how many organizations I interact with fail on this score, much to the frustration of the sales team.  I put the responsibility of creating such tools directly on the shoulders of the marketing department.

Bottom line:  Customers do not fixate on price because it is their nature.  We make them behave like this by our failure to shift their focus to the value we are creating for them. 

Dr. Ajay Sirsi is an award-winning marketing professor and Director of the Centre for Customer Centricity at the Schulich School of Business, York University, Toronto. Visit Dr. Sirsi's website to learn more about his work on customer-centricity at: https://ajaysirsi.com


5 comments:

  1. This article was extremely informational and I really appreciate the way you explain how we must create customer value by changing the way we communicate and create value with our customers. You can sell anything with the correct marketing.

    ReplyDelete
  2. It came as a shock to me to learn that consumers & businesses often look at value over price. This concept made sense once I finished reading this discussion. It reminds me of buying a smartphone. When shopping for a new smartphone consumers care more about the brand & its perceived value rather than the price itself compared to the competition.

    ReplyDelete
  3. It came as a shock to me to learn that consumers & businesses often look at value over price. This concept made sense once I finished reading this discussion. It reminds me of buying a smartphone. When shopping for a new smartphone consumers care more about the brand & its perceived value rather than the price itself compared to the competition.

    ReplyDelete
  4. This blog post is really useful to me as I am learning about ways to shift customer's main thoughts from price to value. The contents of the blog are concise but complete and discuss all of the reasons and causes that lower end stores suffer when compared to luxury stores and also explains what they should be doing in order to be as profitable as a luxury store. I also really enjoyed the table as I am a bit more of a visual learner.

    ReplyDelete
  5. This article shows a perfect example of how marketing and better understanding your customers can get you the right business. It also shows how Customer Value is one of the most important parts as it gives you relationship between the business and customer offering a wider relationship between the two can give the customer more information. Having the customer realize the benefits they gain the price of the product will not together.

    ReplyDelete

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