When it comes to sales and marketing, many businesses are tempted to treat price as the ultimate selling point.
But does focusing solely on price really drive the best results?
Studies suggest that it may not be the deciding factor we think it is. Instead, it is just one component of the larger value customers consider before making a purchase. Here, we will explore why focusing beyond price can increase profitability and customer loyalty.
The Myth of Price as the Driving Factor
Price is frequently believed to be the single most important aspect of a customer’s purchasing decision. However, data tells a different story. According to one survey, only 15% of customers make decisions solely based on price, while a whopping 68% leave a business because they feel that it is indifferent to them. This insight challenges the notion that lower prices alone can attract and retain customers.
Customers prioritize factors that give them a sense of value beyond mere cost. They want solutions that address their needs, along with a positive experience. As a result, focusing exclusively on price often overlooks the real motivations behind a purchase.
Understanding Customer Decision Factors
When considering a purchase, customers typically weigh various elements. Here are some of the top factors besides price:
- Quality: Customers want products or services that meet their standards and last over time.
- Customer Service: Excellent customer service adds significant value, as customers want to feel acknowledged and supported.
- Convenience: Easy access, fast delivery, and flexible payment options all make a company more appealing.
- Warranties and Guarantees: Risk reduction through warranties offers peace of mind.
- Personalized Assistance: Many customers appreciate knowledgeable advice and support, especially for more complex purchases.
These factors combine to create a perception of value that transcends the simple dollar amount.
A Closer Look – Why Customers Leave
In the same survey, customers were asked why they chose to leave a business. The reasons were illuminating:
- Convenience accounted for just 3% of customer losses.
- High-level relationships—such as a shift to a trusted friend or family member’s business—represented 9%.
- Product/price/time concerns accounted for 15%.
- Finally, perceived indifference—the impression that a business did not genuinely care about its customers—was the leading cause, at 68%.
This shows that price is not the primary reason customers leave; rather, it is the lack of personal engagement and attention. When customers sense that a business does not value their patronage, they quickly turn to a competitor that does.
Real-World Case Studies: Price Is not Everything
Many businesses that consider themselves in “price-sensitive” industries have discovered that focusing on non-price factors can boost their profitability. Here are two examples:
- The Electrical Goods Market: This industry might seem entirely price-driven, but an independent study found that only 18% of customers based their purchases on price. The majority were more interested in features and the benefits those features offered. Nearly half (42%) of customers made their choice based on the product’s features and the perceived advantages those features would bring them.
- Hot Chicken Store vs. Chain Franchises: An independent chicken shop found itself struggling against larger chain franchises with more purchasing power, which allowed them to offer lower prices. After a strategic decision to raise prices rather than try to compete, the owner saw an increase in profits. This pricing decision allowed him to focus on differentiating his business, highlighting a customer experience that set him apart from his competitors.
Both examples illustrate the power of shifting focus away from pricing wars and toward creating a unique value proposition.
The Cost of Discounting
Many businesses use discounting as a strategy to boost sales, but the math behind it may surprise you. For example, if your profit margin is 30%, a 10% discount requires an astonishing 50% increase in sales to maintain the same profit. In other words, discounting is often less effective than anticipated and can even harm long-term profitability.
In contrast, increasing prices can enhance profits without major losses in sales volume. At a 30% profit margin, raising prices by 10% means you could afford a 25% decrease in sales volume before profits fall below previous levels. While discounting can make a quick sale, it is rarely a sustainable way to grow profits.
Shifting the Focus to Value and Service
So, what is the alternative to relying on price as the primary marketing tactic?
Focusing on value-driven service, tailored customer experiences, and a unique business identity can be far more powerful. Here is how:
- Better Service, Better Sales: Companies with a focus on “awesome service” give customers a reason to stay, pay a higher price, and return. High-quality service not only leads to immediate sales but also creates long-term loyalty. In fact, studies show that improving customer retention by just 5% can increase profits by as much as 25%.
- Understanding and Meeting Customer Needs: When customers inquire about price, it is usually just the beginning of their decision process. Businesses that can look beyond the price question and explore customers’ needs—such as specific product features, customization options, or delivery requirements—demonstrate an understanding and commitment that resonates with customers.
- Training and Consistency: It is essential to train employees to deliver consistent, high-quality customer service. Programs like “Towards Awesome Service” can empower employees to engage with customers more effectively, creating a culture of service that naturally stands out.
Your Action Plan to Move Beyond Price
By broadening the scope of your business strategy, you can differentiate yourself from competitors who focus solely on pricing. Here are some steps to start:
- Evaluate and Adjust Pricing Policies: Review your approach to discounts and consider how adjusting prices might impact your bottom line. Avoid excessive discounting, which can erode long-term profitability.
- Invest in Customer Service Training: Equip your team to offer service that goes beyond customers’ expectations. Programs focused on “awesome service” can be especially beneficial.
- Ask the Right Questions: Train staff to go beyond quoting a price when interacting with customers. Encourage them to ask about the customer’s specific needs, preferences, and timelines.
- Consult with a Financial Expert: An accountant or financial advisor can provide insight into effective pricing strategies that support profitability without undercutting value.
In Conclusion
Price, while important, is rarely the most compelling reason customers choose to buy from a particular business. Often, they are looking for a positive experience, a feeling of value, and a sense of connection with the business. By shifting focus away from price and toward quality, service, and a unique customer experience, your business can stand out in ways that drive customer loyalty and profitability—without racing to the bottom on price.
Thanks for reading…