Myth: “Service is nice, but price wins customers–look at Wal-Mart!”
Fact: Some customers may buy on price, but most customers will pay a premium for great service.
My “Exhibit A” is Starbucks, which my editor calls “FourBucks”. Why would anyone ever pay four dollars for a cup of coffee?? Half the country does every day! It is the experience especially the service - even in spite of occasional long lines.
A majority of customers will pay more for higher quality. In fact, my research shows that in most markets, including the retail banking example below, sensitivity to price is strongly correlated with problem encounters. If the customer has had a smooth experience with no problems, only 10% express any concern about price. As soon as they experience a problem, sensitivity to price DOUBLES! A second problem doubles this price sensitivity once again.
Less sensitivity to price means that companies with better service can achieve higher margins. Customers may say, “You’re expensive, but you’re worth it, because I usually have a great experience with no problems.”
Lesson: Show your CFO that great service allows for more flexibility in pricing and potentially higher margins.
What you can do tomorrow:
1. Measure problem experiences using a short survey of a random sample of customers (this can be as few as 200 customers – you’re not writing a PhD thesis) and ask a second question: How satisfied are they with the price of the product or service? You will see a relationship like the above chart that is a compelling case for your CFO to invest more in service. (Get my paper, Selling Service to the CFO during my April 16 webinar).
More from the "Customer Service Myths" series: