I’ve worked with mature businesses experiencing declines in units sold as the average price rose.
The obvious answer to most folks: rising prices chased away customers.
The market researchers agreed with the sales data, as their surveys revealed that high price was the number one reason cited by customers for not returning.
Even customers believed it. When I talked to customers, high price was the most common complaint.
I believed it, too.
Though, I opened my mind to other possibilities after we tried a number of ways to lower prices and they failed.
The ‘high price’ hypothesis didn’t die easy. We came up with all sorts of reasons why the price reductions failed: We didn’t tell anybody! The price drop was too small! We’ve already priced customers out and they won’t come back.
We tested those, too, to no avail. While others still clung to their high price explanation, I dug deeper.
I began asking customers lost to high price: What price would win you back?
Most paused as they thought about it and then gave me the real reason why they stopped using the company.
I found two common themes: service beaks and value discovery.
An example of service break is when you go to a high-end restaurant and receive casual chain restaurant level service. It’s not terrible, but didn’t live up to the higher expectation.
Value discovery is when someone tries your product and discovers they do not value it as much as their favorites. How many products do you try only to discover that you do not value it? I like beer. I try many beers that aren’t bad, but I don’t enjoy as much as the beers I like more, so I might buy them once and not again.
On a market research survey I might even say the price is too high and what I really mean is that the I’m not willing to pay for that beer when I can pay the same amount for a beer that I like more.
Those answers inspired me to ask the market research group to see raw data from their surveys.
I found through answers to other questions on the survey that got little attention on the market researchers’ final reports, the lost customers revealed the same two reasons.
The market research group had a strong bias against the company’s high prices and when they saw the answer that fit those biases, they stopped looking.
My analysis of the data inspired approaches to keeping customers, without discounting.
One approach we tried: improving training so that when a customer visited a high-end restaurant, they received the service they expected. That worked better than offering the discount.
Through that experience I learned to be aware and leery of when everybody thinks the answer is obvious. Maybe it isn’t.
Be open to other possible explanations.
Consider how to figure out those other explanations, like when I asked lost customers what price would win them back? And then dug deeper into the market research. The answers were there all along, but nobody wanted to look at them because they were so certain they knew already and discounted any opposing evidence.
After all that, I remember one day receiving a challenge from one of the market researchers, “if price isn’t the reason why units have declined, why have units declined almost in lock step with the price increases?”
What I had also discovered is that the prices had been increased by management in the past to make up for the lost units to achieve the company’s financial goals. So, the undiscovered reasons driving the lost customers were, in essence, causing the prices to rise, not the other way around.