A question that B2C and B2B companies alike struggle with on a continuous basis is: What is the right amount to charge customers?
The truth is that the right amount may or may not be the price that your customer had in mind. But, it is the amount that makes them feel that the overall decision is “worth it.”
The question you need to ask yourself is not: How much should I charge my customers? But: Why would customers pay for my product and how much is it worth to them?
HOW DO I RAISE MY PRICES WITHOUT CAUSING CHURN?
If the customer chose you, that means your original price was most likely factored into all the variables used to determine your worth as a company. So, to prevent an exodus (churn) every time you ask your customers for more money, it’s important to single out which experiences make you the most “worth it” alternative and work on increasing the frequency and/or value of those experiences.
To find out what makes you “worth it”, you need to first get inside your customers’ brains and understand what goes into the decision to spend money on your product.
WHAT DRIVES CUSTOMER DECISIONS?
Money is an easy thing to quantify and it makes sense that we’d always look for the lowest cost/highest benefit way to spend it, right?
Wrong. It turns out that decisions involving our money are some of the hardest to understand. In fact, the relation between human decisions and money is so complex, yet so important, that it was the subject of the 2017 Nobel Prize in Economics.
And while these new studies help shed a little light on the subject, the mix of customers and how they spend their money will continue to be an evolving and complicated landscape.
However, there is one thing we do know for certain about decisions surrounding money—people want to spend the right amount. Nobody wants to spend more than necessary to get what they want, and they’ll gladly spend less.
But since our thought process mixes up all our different decision drivers: money saving; time saving; energy saving; well-being, etc., spending the right amount isn’t the same for everybody, and will change according to what is most “worth it” to each person.
Cost-benefit analyses of some kind are constantly happening inside our heads, and while we might not even notice every time, a decision is always made, whether it’s done consciously or not.
THE DECISION-MAKING PROCESS
Every decision we make is based on cost-benefit. As humans, we are constantly managing all the resources within our control in a, perhaps primitive, attempt to survive longer.
Many of our day-to-day decisions are driven by cost – trying not to lose time and energy. For example, deciding to order take-out with Uber eats delivery instead of cooking. Or maybe sitting through infomercials because you don’t feel like getting up to look for the remote.
But other decisions are driven by benefit – a desire for well-being, which is less tangible. Like deciding to start a diet, or quit smoking. It’s not pleasant, but the sacrifices are the price you must pay to gain that state of well-being.
The same goes for spending large amounts of money. If a customer feels that the benefits outweigh the cost and decides it’s “worth it”, price becomes less relevant and they will pay.
DISCOVER YOUR WORTH THROUGH VOICE OF CUSTOMER
But how can companies find out whether their offers are “worth it” to their customers?
One way is through Voice of Customer surveying. An additional option is monitoring forums and scanning through review boards that offer key insight on how customers think.
Here at Worthix, we developed a new a Voice of Customer survey that determines how strongly each driver is weighing on the customer decision-making process itself.
This allows us to precisely pinpoint not only what is making you “worth it”, but also determines which factors can be stimulated in order to compensate for something viewed negatively, like a price increase, for instance.
In a nutshell, to reduce the probability of churn when raising prices, keep these 3 things in mind:
- Listen to the Voice of your Customer
- Identify the drivers that make you “worth it” to them
- Boost those experiences in order to compensate for price increase
What worth are you delivering to your customers through their experiences?
Once you as a company have answered this question, set out to prove to your customers that you are the most “worth it” despite the price you charge for those experiences.
Senior Research Analyst, Curtis Smith, began his career in the finance industry in New York, where he was born and raised. His attraction to the intersection of money and human decisions shaped his work as a financial communications consultant, which led him to São Paulo, where he continued his career for over a decade in the financial industry with BNY Mellon. Upon returning to the U.S., Curtis left finance to join Worthix, where he continues to explore the influence of decision making through the application of technology to a new customer experience metric.