Although a client may leave you for a variety of reasons, we generally find that there are two key drivers of defection that a pricing strategy can address.
The first is when clients feel they are not getting value for money. The second, more worryingly, is when they actually feel that they have been cheated by a brand and actively take steps to leave, possibly even badmouthing the brand afterwards.
Addressing these issues, whether you are selling a product or service is essential. In the case of products, it means that the client will not buy from you again. In the case of services that are being delivered on an ongoing basis, it means that the client will not use your services in the future.
Therefore, this requires some thought around what the client understands that value proposition to be. This is relevant, because the promise and the delivery based on those expectations will help the client to ascertain whether they are getting value for money, based on the price they paid.
Key areas to consider include.
- What value proposition are you offering? Have you linked the value proposition to the correct client segment so that it is relevant to them? This issue is a key contributor to misaligned price-value equations.
- How are you communicating this value proposition?Has the client understood your value proposition? They need to value what they are paying for! If it becomes evident that client did not understand your communications, has there been an effort to make the client understand what they are getting? Alternatively, has there been an effort, if feasible, such as in the case of a service, to upgrade or downgrade the client to a related service that will better meet their needs?
- Have you considered having additional products or services positioned above and below the product or service in question, so that prospective clients can easily understand what they are getting and not getting for the price being paid? Sometimes, it is an easier communications job to show these alternatives so as to convince a client to buy into a desired option.
- Does the pricing strategy encourage “loyalty” or desirable buying traits? This may be promoted through benefits such as easier access to senior employees at short notice, some services being temporarily bundled with a primary service at a reduced price, etc.?
Success at this approach can be visible through:
- Repeated purchases over a period of time by the client.
- Successful cross-selling which helps to make it more difficult for the client leave suddenly due to the effort in switching over to suitable replacements.
- An increase in the client’s share-of-budget relating to how much the client buys within the category.
As you will have noticed in the discussion above, there is so little emphasis on cutting prices to make a client more loyal to you. Consider the variety of alternative options open to you to implement some of these concepts in your own business.
About the author
Alan Ohannessian started WisdomInc in 1999. WisdomInc focuses on Pricing Strategy, Brand Strategy and Analytics. He has consulted to over 70 global and local brands across 15 industries during this time.
Prior to this, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period. He was also lecturing Marketing Strategy, Consumer Behaviour and Retail Marketing during the early 1990s at the University of the Witwatersrand, Johannesburg.
He has a B Comm. (Hons) from the University of the Witwatersrand in Manufacturing Strategy where he focused on how to mass customise products at competitive prices. He also has a Master of Commerce degree from the University of the Witwatersrand which focused on distribution channel strategy and logistics.