What Matters Is the Perception of Value, Not So Much the Product

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you a higher ROMI and a greater ACPO.

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions.

In a previous blog post, I recounted the story of the “thank you” gift given to the U.S. Ambassador to Brazil by the chairman of the American Chamber of Commerce. He presented Madame Ambassador with a small blue Tiffany box and said:

“Here is a small gift to show our appreciation for your support.”

Her answer should be writ large on Tiffany’s advertising.

“There is no such thing as a small gift from Tiffany.”

That says it all. Imagine that whatever was in the Tiffany blue box had actually been purchased less expensively from some other source. Would anyone question that the gift’s perceived value grew exponentially when it appeared to be from Tiffany? I remember a humorous ad in the university newspaper offering Brooks Brothers, Paul Stuart, and J. Crew labels to sew into your discount purchased garments to upgrade them by endowing them with the right Ivy League cachet. Somebody understood the magic of perception.

If you haven’t watched Flint McGlaughlin’s excellent presentation from MECLABS Institute you should. His insights make a very strong case for his pricing methodology, which is really worth studying.

Pricing of products or services is one of the key strategic aspects of all businesses. It is fairly easy to look at what your competitor is doing and use that as a benchmark. But “me-too” market pricing is seldom enough and certainly not the way to have a big success. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you not only a higher ROMI (Return on Marketing Investment) but it also often provides a greater allowable cost per order (ACPO) — more money with which to promote, more customers and, hopefully, greater profits.

The profusion of “subscription” offers in the marketplace is testament to the simple economic truth that if you can engage or enroll someone in a program of purchases, the likelihood of being able to transform a “product” into a “service” is greatly enhanced. And services tend to have higher margins. You may remember the story of the 40 or so Microsoft executives in Brazil who, when asked how many had subscriptions, very few hands went up. But when asked how many had Netflix, virtually all of the hands went up. Netflix had managed to eliminate the negative perception some people have to a “subscription” simply by not using the dreaded “S” word.

What has been surprising is that Netflix competition’s pricing appears to have been forced down to undercut Netflix. Looking at all of the streamers, there appears to be much too little effort to segment customers, to determine their individual perceptions of the value of the services (other than to see how many people subscribe and at what cost) and to reengineer the offerings to cater to perceived values. As Rafi Mohammed, the founder of “Culture of Profit,” wrote in the Harvard Business Review:

A one-price-fits-all strategy fails to acknowledge the simple fact that for any product or service, customers have unique needs and a different willingness to pay. With few rivals, mandating all-you-can-watch pricing was once tolerable. But to win in today’s competitive market, streaming companies need to step up their pricing strategies by offering choices to better accommodate the needs of their customers.

He hits the jackpot when he observes, “ … customers have unique needs and a different willingness to pay” and these needs and this willingness are driven, to a significant degree, by how much each customer perceives the services to be worth. That perception reflects the subscriber’s assessment of the channel’s content. For certain affluent customers, the more content that is unique and the subscriber “believes” will meet his/her tastes, the more likely to purchase a premium package, especially if it has “exclusive” content. The couch potato who is less choosy and has a tighter budget will probably go for the cheapest option.

As we can see in this example, the pricing has little to do with the product and service “costs,” which are probably similar for both the premium and economy versions. What matters is the perception of value.

If you don’t embrace the reality that perception may matter more than some other criterion for pricing and how your prospect looks at your offering, you may never have given anyone a little blue box from Tiffany.

Returns Are the Final Frontier for E-Commerce Dominance

E-commerce has had to overcome several barriers in its relatively short lifespan. (Well, relatively short for a Baby Boomer. But not so much for Millennials and Gen-Zers, who don’t remember a time when milk was delivered to your doorstep daily.)

E-commerce has had to overcome several barriers in its relatively short lifespan. (Well, relatively short for a Baby Boomer. But not so much for Millennials and Gen-Zers, who don’t remember a time when milk was delivered to your doorstep daily — but you couldn’t get almost everything else delivered for free in two days.)

First, there was online penetration. In 1999, only 44% of Americans had Internet access, either at home or at work.

Next, there was the fear of using your credit card online (65% in 1999). Most people got over that as they began to trust traditional retailers’ online sites and Amazon became a household word.

Shipping costs are too high. Enter Amazon Prime and FREE SHIPPING on orders over $30 from other retailers.

“I want to see it and feel it” and “I need it today” resulted in shopping online and buying offline, a common practice for several product categories even today, including high-end electronics and clothing.

Returns are a hassle and/or expensive. Yep! About 33% of global shoppers cited online return policies and processes as deterrents. (Chain Store Age, October 2015)

If there’s one thing consumers hate more than paying for shipping, it’s paying for return shipping. As counterproductive as it seems, I go out of my way to take Amazon returns to a return center to avoid paying $7 for return shipping. Returning an online purchase to a retail location is another option that consumers will choose — one that is probably more time-intensive, with a higher negative ROI. I don’t have firsthand knowledge, but I’m sure most online retailers have tested a higher price point with free shipping vs. lower price point plus shipping. Chances are, free shipping wins.

Zappos offers free returns so you can try different sizes and colors of shoes on in the comfort of your own home. However, free returns are met with the same skepticism regarding price as free shipping.

E-commerce continues to grow at a decent pace.

“Early analysis from Internet Retailer shows online retail sales in the U.S. crossed $517 billion in 2018, a 15% jump, compared with 2017. The growth in retail sales in physical stores reached 3.7% last year. This means that e-commerce now accounts for 14.3% of total retail sales, when factoring out the sale of items not normally purchased online, such as fuel, automobiles, and sales in restaurants. And it also means that in only a decade, the web has more than doubled its share of retail sales. Ten short years ago, e-commerce was at 5.1% of total retail purchases.”

While an almost threefold growth in 10 years is impressive, I think that making the return process more satisfying for consumers can accelerate the growth of e-commerce. Changing the consumer mindset about return costs may be the answer.  In his book, “Misbehaving: The Making of Behavioral Economics,” Richard Thaler notes that members view their Costco and Amazon Prime annual fees as investments and make no attempt to allocate those costs over the various purchases they make during the year.

Is there an opportunity for an unlimited free returns membership add-on from Amazon or another retailer? I know people who are chronic returners at brick-and-mortar stores who would welcome it. Pricing it certainly would be tricky. What do you think?

In a Contest of Opinions, You’ll Lose — Research in Healthcare Marketing

How do you know? It’s a question difficult to answer and defend without supporting data. That’s why research is so important to healthcare marketers.

How do you know?

It’s a question difficult to answer and defend without supporting data. That’s why research is so important to healthcare marketers.

Healthcare is a field used to working with data. Physicians use it when considering treatment options. Administrators use it for assess performance and trends in financials and patient satisfaction. Insurance companies rely on it to gauge claims risk and establish premiums. So, a healthcare marketer who doesn’t use data as the foundation for strategy, messaging and tactics faces an uphill effort.

There’s a growing risk to marketers who don’t conduct research. When resources are constrained, leadership looks to marketing to demonstrate ROI. If marketing only relies on taking internally popular messages or assumptions to market, the audience response rate may be underwhelming.

Marketing strategies and campaigns need to be based on the attributes, values and preferences of the intended audience. The only way to gain that level of insight is through objective, third-party research.

Why third-party research? Because it’s easy to unintentionally incorporate biases in the wording of questions, the sequence of questions, the scale that captures feedback, the population being included in the survey, and reporting of statistical significance and findings. An experienced research firm can probe for insights using a methodology that stands up to scrutiny, creating a credible foundation from which to start. The only thing worse than not doing research is to conduct it and have someone point out flaws in its methodology.

Thought it’s tempting, research shouldn’t be conducted to advocate a pre-existing position. It’s to obtain insights that allow you to better advocate for how the organization can go to market most effectively. My recommendation is to do quantitative studies first, to give you hard numbers, and then do qualitative research among a subset of the same participants to provide emotional context and verbatim quotes that illustrate your quantitative findings.

There are several types of research you might consider based on your needs:

Awareness, Usage and Preference (AUP)

This is the most common type of market research. It should be conducted to set a benchmark and repeated either after a major campaign or on an annual schedule to track changes. Its objectives are to measure unaided, aided and total awareness of your brand within your service area, how those numbers compare to competing brands, perceptions of all brands based on various attributes, and the likelihood of yours being chosen over others. You might conduct this for your Masterbrand, a facility or a service line.

To get an accurate picture of what the market thinks, a great deal of thought should go into screening criteria for who you include/exclude from the survey pool, the quotas to set based on demographic criteria, the geographic dispersion of respondents and total sample size. These criteria should be stated whenever you report results.

Drivers of Choice

One of the hardest marketing challenges is determining what to emphasize in messaging. This can be the subject of internal bias and fierce debate. Whether it’s a short online video ad or a 60-seond radio commercial, there’s only so much information you can include. And you already know, as a marketer, that the more you pack into a message the more likely it is to be forgotten. A ‘drivers of choice’ study sheds insight on how the overall market ranks certain attributes or features when considering a choice.

Brand Strategy Beats Price Tactics

My nose may not have been bloodied and my body dragged off a plane, but I faced my own travel crisis this week. And that experience proved that one company’s ongoing, consistent brand message — embedded deep in my psyche — was about to finally pay off.

Enterprise brand strategyMy nose may not have been bloodied and my body dragged off a plane, but I faced my own travel crisis this week. And that experience proved that one company’s ongoing, consistent brand message, embedded deep in my psyche, was about to finally pay off.

It all started at the airline check-in counter. Delta, an airline that has never done anything to endanger my loyalty, presented me with a dilemma: My one-stop flight to Ottawa was in jeopardy because the first leg of the flight was delayed, meaning I would miss my connection.

If you’ve ever tried to fly to Canada, you already know there are limited options. And despite Ottawa being Canada’s capital city, Delta only offers two daily flights from Detroit.

I HAD to be in Ottawa first thing Tuesday morning to help my son move out of his dorm, and make our afternoon flight home. The Delta agent could not have been more helpful as she tried to rebook me multiple ways to get me there. Finally, I agreed to fly to Atlanta, then onto Montreal and would rent a car to drive the 2-hours to Ottawa.

Rearranging my car rental proved to be the bigger challenge.

To be honest, I haven’t been a loyalist to any particular rental company … until now. I typically use a website like Travelocity to compare prices across all brands, then rent from the cheapest option. So, when making my original rental, Budget had won the price war.

So there I was, sitting on the floor at the packed airline gate, my flight to Atlanta about to depart, and I’m frantically trying to rearrange my car rental before my cell phone dies. I call the Budget desk in Ottawa and tell them my dilemma. They suggest I call the Budget desk at the airport in Montreal. I make that phone call but am serviced by one of the most incompetent of all customer service agents.

He speaks so quietly I can barely hear him, so I say (politely I might add) “I’m in a noisy airport and can barely hear you, would you mind speaking up?” Apparently he has no volume capabilities because I continue to strain to hear him.

After explaining (again), that I need to rent an SUV at the Montreal airport and return it to the Ottawa airport, and after he repeatedly says “You’ll return it to the Montreal airport, right?” I ask to speak to his supervisor. He puts me on hold and then — wait for it — after a few seconds I’m listening to the dial tone. Gee, what a surprise.

The gate agent begins the boarding process and now I’m in full panic mode.

I Google car rental options at the Montreal Airport and while lots of options pop up, I see that Enterprise has a 4-star rating (Budget has 1 star). And that’s when the Enterprise brand tag line (“We’ll pick you up!”) quickly translates in my brain to “We’ll do anything for you!”

And sure enough, my Enterprise experience was fabulous … from the minute I got them on the phone, explained my need, to the drop-off in Ottawa. And, they did go the extra mile since their rental desk closed at midnight, and I wasn’t landing until after midnight, they left the rental agreement and keys with at the National car rental counter which was open until 1am. WHEW!

Calm, cool and cooperative during my personal crisis, I want to shout from the rooftops, “Thank you Enterprise, for picking me up when I was down … way down.”

And the company’s long-invested marketing strategy and messaging paid off big time for this customer. Forget shopping for the cheapest option. Forget renting from the Budget folks. Enterprise will be rewarded with my ongoing loyalty.

Rather Test or Guess?

“Make me a deal on a split run.” Of all the negotiating ploys we as marketers might consider, this simple sentence has more success-seeds than any of the fustian and fury we could force out of our bargaining-parleying fingertips. And a “Yes” answer from an understanding medium, which costs zilch, has to result in information far more profitable than even our top-of-the-line brainpower can match.

TM0810_searchglobe copy“Make me a deal on a split run.”

Of all the negotiating ploys we as marketers might consider, this simple sentence has more success-seeds than any of the fustian and fury we could force out of our bargaining-parleying fingertips. And a “Yes” answer from an understanding medium, which costs zilch, has to result in information far more profitable than even our top-of-the-line brainpower can match.

One assumption we certainly have enough professional knowledge to lean on: the circulation of the medium has at least a tenuous match with a logical buyer. Our prospects won’t think we’re approaching from the planet Mars.

For print media, a split run is easier to mount today than it ever has been since, some hundreds of years ago, we as marketers invaded the nooks and crannies of publishing. For direct mail, it’s a bonanza whose luster dimmed when direct radio and then direct television mussed up the turf. For online, it’s too natural and obvious to be regarded as an innovation.

The overriding interpretation of what we’re discussing is a single word: test.

If the notion of testing a direct appeal is foreign to you, call me or any of about fifty thousand other self-proclaimed marketing experts, and we’ll be glad to take advantage of your naiveté.

Or, if you’d rather, make one decision that has to be profitable: what to test.

The most common test element is price. What price represents the best addition to the bottom line? $19.99 may bring more orders, but $24.99 is more profitable. And in today’s wild marketplace, where 99 cents has almost universally replaced the venerable 95 cents, $24.99 just might bring in more responses than $19.99. What if we glamorize the offer? $29.99 versus $19.99? We can test to give us an answer.

(Sample example: a recent three-way test for a collectible priced the item at $15.49, $15.99, and $17.99. Which brought the highest total number of responses, not just dollars? Right. $17.99. I suspect because the product has a tie to tradition, $17.95 would have left $17.99 in the shade, but the testing impulse didn’t extend that far. Maybe next time.)

And easy? What test could be easier? Just be sure that each addressee gets just one distinct offer and the response code differs for each price.

“Seat of the pants” guesswork is old-fashioned and amateurish, and depending on the deal you can make with media or a lettershop, not an optimal investment in marketing.

Hmmm. Here’s a unisex jacket. Here’s a tablet computer. Here’s a DVD whose content dwarfs any approach to the business problem its content solves. Here’s an extraordinary assortment of dessert-goodies.

A true split is just one split-test: When an offer appears on our monitor, we can’t tell if it’s unique or part of a split run … that is, if the code doesn’t betray the technique.

What does that mean? Well, suppose you get an online offer from “Firearms.” Does that, emotionally and in your mind factually, differ from “Guns” or for that matter the singular, “Firearm”? What if the sender had split the subject line, sending to one group “Look out. This gun fires in both directions” and to a parallel group “Gigantic 75% discount, today only.” Even from this example, any of us can predict that response will be skewed by the difference in appeals. What we have is a message test, even though only the subject lines may differ.

Email to Repair Broken Customer Relationships—What J.C. Penney Got Wrong

Email is one of the more personal forms of electronic communication. Notes from friends and family are co-mingled with marketing messages. This makes it an excellent vehicle for repairing broken relationships. When done well, email apology letters drive sales in addition to mending relationships, but can they save a company from a death spiral? The management team at J.C. Penney is hoping that the recent note from CEO Ron Johnson will reverse (or at least slow down) the sales free fall for the last two quarters.

Email is one of the more personal forms of electronic communication. Notes from friends and family are co-mingled with marketing messages. This makes it an excellent vehicle for repairing broken relationships.

When done well, an email apology letter drives sales in addition to mending relationships. A few years ago, a client had a system failure that resulted in delayed shipments of holiday orders. An email was sent to every customer who had placed an order that season (even the ones who had already received their orders.) The message explained what caused the problem, apologized for any inconvenience, promised to expedite shipments of remaining orders, and offered a gift certificate for future orders.

The immediate response was so positive, the President quipped, “We should plan a problem once a quarter so we can apologize!” The revenue from the apology letter more than covered the expedited shipping. Furthermore, the relationship between customer and company became stronger. The people who received the letter consistently outperformed their counterparts who didn’t get one in both sales and lifespan.

Personal letters help salvage relationships but can they save a company from a death spiral? The management team at J.C. Penney is hoping that the recent note from CEO Ron Johnson will reverse (or at least slow down) the sales free fall for the last two quarters. In May, the first quarter results revealed a 20.1 percent drop in revenue because shoppers didn’t like the new pricing and marketing strategy. Second quarter was worse with another revenue drop of almost 23 percent. Traffic was down 12 percent.

When things are going south at this rate, quick action is required. Johnson admitted to pricing and marketing mistakes when speaking with investors, but his letter to customers is more like an introduction than an “Oops! We goofed.” The letter reads:

Dear valued customer,

You’ve probably heard about recent changes at jcpenney. I’m honored to
say that I’m one of them.

I’m Ron Johnson, and I came here because I have a lifelong passion for
retailing—and jcpenney has been one of America’s favorite stores for
over a hundred years. My goal is to make jcpenney your favorite place
to shop.

I’ve asked our team to innovate in many ways—to help you look and live
better—and to make shopping more enjoyable.

While you will see many changes, you can rest assured that we’ll never
lose sight of our founder’s values. When James Cash Penney built his
first retail stores over a century ago, he called them “The Golden
Rule,” because treating customers with respect was his highest
priority.

One of Mr. Penney’s guiding principles was offering low prices every
day—instead of running a series of “special sales.” We’re honoring Mr.
Penney by returning to his pricing policy, so you’ll find great prices
every time you visit.

We’ve also made it easier to return items, we’re bringing in more
great brands, adding excitement to our presentation, offering free
back-to-school haircuts for kids, and much more.

Basically, we’re putting you and your family first, trying to give you
new reasons to smile every time you visit a jcpenney store.

You’ll see many innovations in the coming months, and I’ll keep you
informed in a series of letters like this. I hope you’ll let me know
how we’re doing, and share any ideas that could help us do better.
Just click the link below to send me a note.

On behalf of the jcpenney team, thank you for shopping with us.

Ron

I’d like to hear from you.
View email with images.

*Please be advised that any information disclosed or submitted will
become jcp property and may be used in public communications.”

The timing of this letter is off. It should have been sent prior to the pricing changes. Now is the time for J.C. Penney to be open about the issues and invite people to share thoughts without the threat that they “may be used in public communications.”

Email messages designed to repair relationships are different from marketing emails. They have to be simple and personal. The J.C. Penney email is designed to look like a letter from the CEO, as you can see in the first picture in the media player at right.

Unfortunately, it looks like the second picture in the media player when it lands in the inbox. The letter is an image instead of text. It isn’t very inviting to a loyal customer much less an unhappy one.

Do’s and don’ts for creating personal relationship mending messages:

  • Do personalize the name. “Dear valued customer” says “I don’t know who you are.” The individual who shared this email with me has been a loyal catalog shopper and had a J. C. Penney credit card. They should be on a first name basis.
  • Don’t use a ho-hum subject. You have to catch people’s attention in a flash. “A letter from our CEO” doesn’t do it. Wouldn’t “Our CEO wants your advice” be better?
  • Do identify the problem and take responsibility for it. “Oops! We goofed!” followed with an explanation and sincere apology is the first step to mending the relationship. If the recipient doesn’t feel your sincerity, additional damage is done.
  • Don’t limit responses by qualifying. Mr. Johnson asks for feedback and then states that the information shared may be used in public communications. Some apology emails offer a discount based on a specific order size. Relationship mending emails have to do two things: Take responsibility and offer some form of restitution. A discount is a promotion. Basing it on a dollar amount is adding insult to injury.
  • Do use text-only emails. A picture paints a thousand words and most of them send marketing signals and awaken spaminators. The purpose of relationship building emails is to restore the relationship. This won’t happen if the email goes to spam or looks like a bunch of boxes with red X’s.
  • Don’t ever forget that relationships with customers are a privilege not a right. When you are truly grateful for the opportunity to serve your customers, it resonates in your messages. Make sure that your marketing team (including the copywriter) has the right perspective when creating messages.