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How Unusual Pricing Can Slow Sales

One of the strangest promotions I’ve seen in a long time is buying a drink at McDonald’s for one dollar.  The kicker is that you choose the size without the price changing. Would you like a small or a large for one dollar?

One conversation went like this:

I’ll have a small Coke.

The person’s friend whispered, They’re all one dollar. Get a large.

No, a small is fine. I’m not that thirsty.

Soda calories and waste  notwithstanding, the person could have saved part of her drink for later. She also could have shared some of her drink with her companion. Or she could have simply asked for the large size in case she turned out to be more thirsty than she anticipated.

The bigger point is this: a moment of wary hesitation is caused when pricing doesn’t seem intuitive to a purchaser as they scan the offer for a hidden catch. The McDonald’s offer is strange and its results are a marketing psychology paper waiting to be written.

I saw the same phenomenon at online grocer Peapod. As grocery shoppers, we’re conditioned to understand that a larger bulk size often results in a lower unit price. That’s been a retailing axiom for decades and created the rise of the warehouse superstores.

But on this particular day, the larger size was once again less expensive than the smaller size. As you can see below, the unit cost for a larger box of Raisin Bran was lower as one would expect. This difference was so great, however, that anyone buying a smaller box was paying a premium at the unit cost level and at the total price level.

Almost no one understands that without first thinking about the issue.

Buying an extra 4.8 ounces of cereal (25% more) reduced the total cost by $1.29 (34%).  And that just doesn’t make sense to people. We understand that the unit cost is and should be lower, but the 45% decrease made buying more cost less.

There was undoubtedly a good reason for this price just as there are reasons why someone might prefer a box of cereal that is 25% smaller. You’ve already thought of several reasons for both when you read that sentence.

And that’s the problem.

Display of two prices

 

 Pricing should never make someone think, “Why is this deal different than the pricing I’ve come to expect?”  More of something does not normally have a total cost lower than less of something. Yet that’s exactly what happened. At least the drinks were the same price for a larger size. The cereal actually cost less.

Your takeaway as a business leader is that pricing outside the norm of expectations  without an explanation leads to hesitation when a prospective buyer searches for a hidden gotcha. That kind of pricing slows and possibly risks the entire sale because anything unexpected slows down a sale.

I understand when the local bakery posts a sign late in the day that says “Oops, we baked too much” or why Broadway-savvy theatergoers buy tickets the day of their show. Those are norms we’ve learned as American consumers.

Ask someone unfamiliar with your pricing strategy to see if they can look at your prices and articulate your pricing strategy. If they can’t, you’ve got a potential sales objection that may leave prospects wary of doing business with your organization.

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Proactively monitoring customer satisfaction in your business improves everything.   We’ve touched on finding complaints in the past.  You can’t do enough of that work.

But how your organization reacts to customer complaints is even more important.   If you can’t get complaint resolution right, fold up your tents and quit or sell the company.  You must live by a culture of “every complaint properly handled every time”.  That does not mean robotic greetings and talk tracks that emphasize upsells.

Think of  a business version of The Golden Rule.

We recently saw both sides of the coin at our payroll company.  We love our payroll company.  They are always responsive, the price is reasonable and the service is easy to use.   But we apparently threw them for a loop when we hired an employee in another state.

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Our review of service stories kicks off with this most important concept:

Understand where your customers are complaining and what customer complaints are most prevalent.

I sat in a local government proceeding last month where a government employee asserted that there were no complaints about taxicabs in a jurisdiction serving more than one million people.  He finally acknowledged that there were likely issues, but that they didn’t bother consumers enough to complain.

The corollary is almost certainly true.   Consumers certainly received poor service and almost certainly complained about that service.  They complained to the companies involved, a different agency or to others who don’t record complaints.  But because those consumers had not complained in the way that the county dictated they should, county employees asserted multiple times that the county’s programs worked fine and consumers were pleased.

Such nonsensical thinking only occurs in bureaucracies where people don’t have to close the doors if they are wrong too often.  In a small business, pretending that unheard customer complaints means everything is okay is inviting disaster.  Many indicators exist to tell you about your service or product:  revenue, repeat customers, word-of-mouth referrals and proactive market research.

That’s right:  go ask customers how happy they are.

Your takeaway as a small business leader is that you can’t rely on your systems to tell you about service quality by telling you about their complaints.. Go where your customers share their experiences.  Listen.  Ask questions.  Repeat.  Ignore finding out about customer complaints at your own peril.

Customer service and consumer affairs contact centers are for problem resolution.  The very best among them measure customer satisfaction, but that’s usually a market research function.  A small business leader wearing both hats should already be asking these questions.