Know-How Exchange : Customer Behavior

Cause it's not always about price. All decisions are not made on cost alone. Look at how washers/dryers have emerged. You are stuck to find one at the old $400 price point. I have a set of those "antiques", and my neighbor has the $2500 pair. I'm thinking my clothes look exactly as his do....

And not everyone is experiencing "tough economic times"-- just yesterday Tractor Supply announced last quarter finished 38% over last year's. While the big box discounters are reporting sales down.

I just researched for a client new construction in the state of GA, one of the most hard hit and highest unemployment rates in the nation. We identified 2 niches with 1.5bil in new construction projects and 4 million SF.

So point is-- someone somewhere is buying that $2500 widget you are posting about. It might as well be you (or your client). You have to be lazar sharp in your marketing to get to that prospect. Not everyone is your customer-- so be sharp in identifying and targeting the ones that are.

In working with my clients, the hardest hit ones are those that keep cutting prices. People want value not just low price. Two books I like to recommend are "Urge to Splurge-- a social history on shopping" and Priceless, Turning Ordinary Products into Extraordinary Experiences.

Focus on your products motivators and value-- not cutting prices.

Unless the product produces benefits beyond the "average" product (higher resolution brain scanner) then the answer is perception.

How the product makes someone feel about their purchase.
How it makes them feel using it.
How they think others view their purchase.
How they feel connected to the community of others that purchase it.
How they feel connected to the seller.
How much they appreciate the attention to detail/artistry.

And from this perception - what it allows them to be able to do: join a community, make a statement, improve their "packaging", or focus their attention on other things (trusting the purchase will "take care of them").

Value - Its not about cost its about value.

If your product will deliver more value (measured in dollars) than the other guys product - it can fetch a premium.

In the large ticket sale, understanding, measuring and documenting value are critical not just to get a premium but to make the sale period.

This is compounded by the Recession. CFO - the bean counters - have acheived a whole new level of authority within many companies. I don't understand product features - they understand dollars and cents.

Sell your product on features, bells and whistles, or technological advantage - and you may be on the outside looking in.

I have helped a number of companies like yours develop a process for understanding, measuring and documenting their value. Contact me via my profile if you would like to learn more.

Dear cladd,

When it comes to price and positioning you’re far better off attracting customers that are price immune, and you're better off positioning your product or service so that it's congruently aligned with the customer's strongest COMPULSION.

In any given market or niche there are basically two kinds of buyers: relational buyers and transactional buyers.

Transactional buyers are generally price resistant: they tend to be bargain hunters and tyre-kickers that buy based mainly on price.

These are the classic clients that are sucked in by "the flight to cheap" mentality that sweeps over so many retailers when the economy is rough: vendors in perpetual SALE mode, who, more lately are in the perpetual "GOING OUT OF BUSINESS" mode.

Because of this, transactional buyers seldom revisit the same merchant. They might be satisfied with their purchase, but it’s unlikely they’ll become loyal buyers—they tend to shop around
and they tend to be focused on instant gratification and short term gain.

Relational buyers are price immune: they tend to have an investor's mindset; they're more forward-thinking, and generally goal-driven, so they tend to buy for reasons of desired outcome. Relational buyers see price as a worthwhile exchange that gets them a DESIRED result.

They buy stuff because they can afford it, because they WANT it, and because they see themselves as DESERVING of it. They shop in the best stores, eat in the best restaurants, and have standards to keep up.

If their perception is that their exchange is beneficial enough, they’re more inclined to want to repeat that exchange. Relational buyers are immune to price differences because they’re focused on the longer-term benefit of the service or product they’re buying, and because they like to be one up on other people. They're often at the forefront of any buying wave, they are trend setters.

Tap into these emotions and wants and you will make sales. Lots of them.

Transactional buyers = short term, instant gratification,
expense-orientated buyers.

Relational buyers = longer term, benefits over time,
experience-orientated buyers.

By focusing on relational buyers and by catering to their needs through your persuasive, compelling, and benefit-rich offers you achieve three goals:

1. You weed out the riff-raff and time wasters.
2. You reduce your rates for returns, refunds, and exchanges.
3. You form a longer-term bond which reinforces the life time value of your customer.

The OPPOSITES of the three points above are:

1. Bargain hunters and time wasters are seldom satisfied, so they mop up your time.
2. Bargain hunters and time wasters create more returns, refunds, and exchanges, costing your time and charge backs.
3. Do you really WANT to form a long-term bond with someone who offers you nothing but headaches?

Probably not.

Wal-mart-sized stores make money out of transactional shoppers because Wal-mart has the power of inventory turn on their side (the can order, price, sell, and reorder the same goods multiple times before having to pay the wholesaler for the initial order).

By focusing on relational buyers you’ll make a proportionally higher profit margin by selling fewer, higher-priced items to more receptive buyers than you will by selling higher numbers of lower-priced items to transactional buyers.

Relational buyers know you care about their desired result, and because they know you’re invested in them and they return the favour. When you give people this kind of feeling it educates them and an educated customer is an informed customer. Informed customers feel empowered, and empowered customers SPEND MONEY.

Relational buyers come back and buy from you again and again because they know you, like you, and trust you. You made them feel special, valued, and smart. You educated them and educated buyers feel EMPOWERED.

This leads to an odd but powerful result: empowered buyers spend more money.

I hope this helps.

Gary Bloomer
Wilmington, DE, USA

I think it can be broken down into two main drivers.

1) Total Cost of Ownership (and installation). When you are designing a product with a premium product, as a supplier what can I provide at a lower cost than my customer provide it
a) I will pay more for an oven if the new one is delivered, the correct plug is installed, and the old one removed instead of me coordiating all of this.
b) I will pay more for computer hardware if it takes less peopel to support, has less downtime, newer technology and will have longer life.
c) I will pay more for a computer applications if my current staff and hardware can support it with less training and hardware investment.

2) The scond driver is risk. If your product introduces less risk to the consumer they will pay more.
a) They will pay less for a GM or Chrysler car (verses a similar car from Ford) because of the risks associated with them going out of business.
b) They will pay less for a toyota car (verses a similar car) due to the risk that a new quality issue will be identified. (toyota may not be the best example due to their long history of quality products.

To retain and gain customers willing to pay a premium determine what are the cost drivers for them and what you can deliver at a lower cost than them. And determine how you can take risk out of their life.

I've done a lot of work on pricing strategy, price elasticity and delivering high perceived value. Consumers, given the choice, actually PREFER to pay a premium price when they perceive superior value/benefits. So the key for the marketer is communicating (and delivering) superior value/benefits AND charging a premium price.

In many cases, the best route to superior value is elevating a product's positioning to an end-benefit or an end-end-benefit. Essentially that means tapping into the most important EMOTIONAL payoff for buying/using the product. This is especially effective when the competitors are pushing features and not benefits.

Depending on what you plan to do with our answers, I would be happy to share specific case studies that support the thesis I've outlined above. Feel free to contact me using the email address in my profile. (Click on my screen name above.)

This goes back to aspiration. An aspirational brand (or product) means a large segment of its exposure audience wishes to own it, but for economical reasons cannot. People want what they cannot have.

Beyond economic (return on investment) considerations, customers make large purchase decisions for anthropological, sociological, psychological, and artistic reasons.

[Borrowing from the story of John, I would say that it is us who should be baptized in your knowledge.]

I will divide my answer into two parts just as your question was.

First, you pose the question of what other drivers and motivations cause buyers to pay a premium price for large ticket items. I have to challenge the nature of your question - a well developed and powerful brand embodies all the critical elements that influence the buyer's decision making calculus. The issues below may satisfy your request, but they should already be reflected in the brand:
** Greater value through any of the follow: utility, longevity, ease of use, safety, resale value, investment value
** Socio-economic status identification and intrinsic psychological factors.
Beyond the above, similar motivators drive all purchases of products at all price levels, These include advertising, pricing, promotion, accessibility, financing, and the other usual suspects.

In reply to second part of your query, "what can be done to retain premium price advantage in a slow economic period," the answer is to be diligent in adhering to a successful brand strategy over the long term. The most critical pitfalls to avoid include:
** Don’t make short term budget cuts (service, quality, etc) that will compromise the long term value of the brand.
** Don't let the allure of short term discounting undercut the premium price position of the brand.
** Remain Tuned-In to your buyers to move with them over time and address their changing desires.

Thank you for such a stimulating question.

Best regards, JohnnyB.
https://twitter.com/tcmblog

You neglected to mention here 'What kind of product'. ???

This is very significant if you want thr right answer :)

If we are talking about a $2,500 bottle of wine over a $40 bottle, then it is completely different from a B2B brain scanner purchase.

Are we talking about choosing a mercedes over a toyota? then $2,500 difference is not such a big issue.

Are we talking B2C or B2B ??

Who is the buyer? is the buyer spending his own money? or the companies money ?

People spending the companies money are careful, diliogent, prudnet, analytical and savvy.

People spending their own money are 'Stupid' :))

As proven by Carole's point about the washer driers.

Let's face it, who the hell needs a twnet five hundred dollar washer drier :)))

Clarify your qustion first and re post it in a new question.

The more focussed your question is, the more focussedx and precise the answers will be.

Good luck,


Matthew

Cheaper, stronger, lighter - chose 2. I've heard this saying in the bicycle industry, but it or similar saying hold true for most any industry.

Many people will choose cheaper as one of what they want. But there are folks who will chose the stronger and lighter aspects for their bike, in which case they will pay a premium for their bike. You can buy a bike at Walmart for $50, but that bike won't do for a professional bike racer. Or even for someone who is a bike enthusiast.

That is why many different price ranges of bike exist. There are bikes for $50, and bikes for $10,000. And each is marketed slightly different, so that it can show the value. In theory, any bike above the $50 has some premium value to it. Someone will value the premium of a $100 bike over the $50. Same for the $500 bike, and the $2,000 bike. They are expecting a certain experience and will pay the premium to get that experience.