One of the most basic elements of a customer’s experience with a product or service is its price. Although other factors come into play (how customers are treated, ease of use, and their overall service experience), the bottom line remains a key driver in the customer’s experience. Frequently, price sets the tone and framework for the customer’s initial and subsequent interactions with a brand or product, and can influence overall customer success.
The price paid for a product or service will set some inherent expectations about product quality, robustness, and reliability that cannot be ignored. For example, even though an inexpensive, entry-level automobile and a high-end vehicle ostensibly provide the same basic function (transporting people and/or their cargo from one place to another), most consumers will have higher expectations of the more expensive vehicle, and therefore will rate their experience using a more demanding set of criteria.
For products within the same class or strata, pricing can be used to impact the customer experience, which can be a useful strategy during times of economic uncertainty or volatility. Although each of the other tenets of good CX still apply, savvy organizations can use pricing strategies to their advantage.
First, for staple items with significant competition, reducing the advertised price, or offering discounts to reduce the final price paid can help products stand out from the competition, and increase their initial value to customers. The initial experience with the product or brand is positive, particularly if the pricing is positioned as a reduction designed to benefit the customer.
With some products, product price reductions can also be tied to other CX initiatives, such as joining a loyalty program or preferred shopper’s club. In this case, the brand or organization is, in a sense, pre-rewarding those who join the club or program by offering something of value immediately.
Lowering prices on an item or service can also be used to help shift or reframe customer expectations. For example, a product or service could be made available at a lower price, but with the caveat of a shorter warranty period, a reduced level of product support, or limited feature sets or options, compared with a full-price version. This provides customers that are solely focused on price with the option of choosing a lesser overall experience and saving money, versus springing for the full-price offering with all the bells and whistles.
A key example of this approach are software companies that provide products using a freemium model, where a basic product or service is provided free of charge, but money (a premium) is charged for additional features, services, or virtual (online) or physical (offline) goods that expand the functionality of the free version of the software. Most organizations offer several tiers, with price and functionality increasing with each tier. With this approach, customer expectations for functionality and service can be better contained, allowing the company to focus its efforts on servicing the customers that are contributing the most revenue to the organization.
Not all pricing strategies need to be about cutting pricing. Some brands, particularly those that offer higher-end products and services, may choose to alter pricing to be higher than their competitors, to stick out as the premium offering. Even in times of economic strife, there are customers, both B2C and B2B, that demand the top echelon with quality and service, and are willing to pay for it. Do not discount the power of status; some customers also consider paying top dollar a mark of success, and do not mind overpaying in that quest.
The use of pricing as a tool to improve CX largely revolves around setting the initial expectations of what constitutes an acceptable level of product performance and level of service. Even when a product or service is offered at a low price, there are certainly minimum standards for these attributes, and smart organizations will consider providing excellent support and service to all customers, regardless of the price paid, given the potential to convert these customers to higher-priced items, entice them to become brand evangelists, or encourage them to become customers for life.
Relying solely on price as a differentiator can be extremely risky, given the challenges of competing in a global marketplace in which downward price pressure swallow up even large, well-funded organizations. That is why pricing strategies should be considered as part of a comprehensive CX plan, where cuts or increases in price are executed to influence customer expectations and future actions, rather than as a pure sales strategy.
Author Information
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
