As consumers, we typically look for value – that perfect combination of quality and price – when we make a purchase. Most of us have a favorite retailer or group of retailers, and today’s hyper-competitive, information-driven marketplace allows us to easily compare prices across multiple retailers and channels.
A recent study by Bain & Company found that consumers are increasingly willing to “split” their purchases among different providers based on who they believe offers the best price. In fact, nearly half of consumer spending now goes to stores that are not in the customer’s primary retailer preference group. Surprisingly, these companies don’t always offer the lowest price.
The key word here is “believe.” For many consumers, it’s price perception and not the actual price that is driving traffic and purchase. The Bain study showed that some upscale retailers who offered lower prices lost sales to a higher-priced competitor simply because the upscale stores were perceived or expected to be more expensive.
Walmart and Amazon may not be the least expensive on a given item, but the perception that they always have the lowest price will often win the sale over a more upscale retailer with the same or lower price.
We’ve seen this firsthand with a catalog client who was continually being told by customers “you are too expensive,” when the reality was they were priced at or below their competition. We tested a cover that proclaimed in big letters “PRICING BREAKTHROUGH” and it made a huge impact on sales.
Many consumer product retailers are realizing that managing their customers’ price perception has become just as important as their pricing structure. And while there are a number of tactics that companies can consider to address the situation, the first and most important step involves gaining insight into the mindset of the customer.
Some key issues to consider:
- What do your customers think of your brand?
- What are the key factors that are driving your customers’ perceptions?
- Is your product mix properly aligned with your brand perception?
- Are you communicating the information that’s most important and relevant to your customers?
- Is your message being received and understood?
- Who do your customers really see as your competitors and why?
Changing consumers’ perceptions is never easy. The insights derived from customer research can identify the drivers that most impact your customers’ beliefs and help chart the course for long-term success.