Pricing is about capturing a Company’s fair share of Customer’s value co-created. Aligning both, to further increase a company’s Customer equity, requires a shift from exchange to use & context based pricing strategies, imo.
Hence these three questions for you to answer in your specific style, that I so much enjoy:
1. What’s your point of view wrt pricing and optimizing profits over the Customer’s lifetime? And when/how should one (not) apply such strategies?
2. What’s your point of view on renewal pricing strategies?
3. What’s your point of view on dynamic (customer/context-based) pricing strategies (eg in subscription based business models)?
Previously I wrote about the self-serve frozen yogurt stores in the context of creative packaging for better price realization. To refresh your memory, these self-serve frozen yogurt stores price and sell yogurt based on weight. They give you a container and ask you to fill it up with any one of the many flavors and toppings and then charge you one single price per unit weight.
The hypothesis I made then was that self serve option made customers spend more then they imagined they would. To be sure, it was based on a single visit to one frozen yogurt store.
Fortunately someone else collected data on the average customer spend in non-self-serve and self-serve frozen yogurt stores. Recently, the Small Business section of WSJ published data that is likely based on more than one visit,
With weight-based pricing, the average self-serve ticket is $6.32, compared with $5.61 at a traditional store, says a TCBY spokeswoman.
That is 71 cents more than traditional store. But questions remain,
First, is that increase all due to self-serve? The WSJ article calls it, “giving power to people”? Do we feel so empowered that we end up spending more? Is this because we feel less comfortable asking someone behind the counter for something we desire?
I can hear Customer service and “co-creation” evangelists jumping to big conclusion about the incremental profit from customer empowerment.
The answer is not straightforward. While the customer spend numbers may be based on TCBY observing years worth of data from its many stores, it is not correct to attribute causation to mere customer empowerment aspect. Data may fit one hypothesis but it can also fit any number of plausible hypotheses.
Another hypothesis is the one due to the shape of the container.
The containers used in all these self-restaurant have a common pattern. They are all much wider than the containers we see in traditional yogurt stores.
As the research by INSEAD and by Brian Wansink indicate, we lose our ability to judge volume with wider containers. In addition wider bottom nudges us to cover the entire bottom and then build on it. It surely would feel odd to have yogurt in just one small area of wider bottom.
In addition we also do not know how much we spent. It is not that we are adding one scoop at at a time. We do not know the concept of weight. So by the time we take the container to the counter to pay, we have no idea of the price we are going to pay unlike traditional places that list the price right upfront before we make the decision.
The net result is we end up filling up lot more than what we likely want to eat and spend lot more than we normally would do at traditional yogurt places.
To say, “power to the people” (or “co-creation”) is the reason for higher spend is not correct unless someone can do multiple different experiments and run step-wise regression to find out what percentage of changes in average spend can be attributed to “the feeling of empowerment from self-serve”.
Second, should you as a small business considering yogurt store opt for self-serve model over traditional store? Talk to me, I can help you run a model to see if that is the case.