…when even price reduction backfires
You know, human beings are very fascinating creatures. In fact, we are quite an interesting species—when one really takes the time to study our kith and kin. In fact, we should be in cages and glass enclosures while we are poked and probed with all kinds of instruments by other animals.
An interesting research I came across recently has made me more entrenched in my views that we could actually be more interesting as subjects of study than the animals we spend time and resources studying. The name of a book that came out of that particular study, Predictably Irrational, even gives an idea of how fascinating human beings can be. Human beings always pride themselves in being rational beings but studies, such as the one in question, really challenges that assumption.
The research in question was carried out by a team led by behavioural economics professor Dan Ariely of Duke University in Durham, North Carolina. In the study, about one hundred participants were asked to participate in an experiment to determine their pain thresholds. The participants were taken through a process which initially involved purposely ensuring that they each read a brochure featuring a new wonder painkiller called “Veladone-Rx”.
The brochure stated that the drug was so powerful that over 92 percent of patients who had taken it reported significant pain relief within just 10 minutes. The brochure further stated that the relief from taking this drug lasts up to 8 hours. But this was not all. The brochure also added that the price per pill of this drug was $2.5.
After a participant had gone through the brochure, he or she was asked to come in for the study which involved giving them a series of electric shocks. They were expected to rate their pain from “no pain at all” to “the worst pain imaginable.” After the initial experiment, the subjects were asked to take a pill of the wonder drug and cool off for about 15 minutes to take the pain down.
When the 15 minutes were up, the participants went through the same electric shocks and asked to rate their pain levels again. Interestingly, almost all the participants reported lower pain than was recorded in their first results. In other words, the wonder drug had worked because the participants had read earlier that its effect lasts for about 8 hours.
All this would not have been much of a finding if indeed Veladone-Rx was a wonder drug. However, it was not. The pill the participants was nothing but a pill of Vitamin C. The perception patients had, that they had taken a drug that was supposed to be a very good painkiller, was what had lessen the pain.
A word of caution however must be stated at this juncture. The fact that Veladone-Rx is a fake product does not in any way mean that an organisation can put out a fake or bad product on the market and get away with it. Customers will find it out and the consequences might be worse than just having your business shut down. It might even land directors in jail.
This was not the end of the experiment, though. The researchers took the study to another phase. In the following phase, the experiment was run the same way as the first with one notable exception—the price of a tablet of Veladone-Rx as displayed in the brochure was reduced to a mere $0.1 for one group.
The results were quite astonishing. 85% of participants who thought the price was $2.5 reported that their pain had subsided. However, of those who were made to believe that Veladone-Rx was a cheap drug only 61% reported relief from their pain. In other words, when participants thought the drug was expensive, it cured their pain. However, when the price was reduced less people felt they had been cured.
Customers are human beings. It is important to remind ourselves of this very fact ever so often. And human as they are, they can be irrationally rational as exhibited from the Veladone-Rx experiment. Because to all intents and purposes, one would have expected that the rational thing was that customers would appreciate things a cheaper product than a more expensive option. The behaviour, however, of those in the Veladone-Rx experiment were unexpected. One lesson stands out from this study.
As humans, customers cannot always be trusted to act as expected. Although on this particular occasion, I can really understand why customers would react negatively to a cheap product. We tend to believe—and rightly so—that a lot goes into putting together a product or service. Therefore, it stands to reason that the cheaper the product, the less input that has gone into its manufacture.
On many occasions, this has been proven right. Low-priced furniture will be destroyed sooner than the more expensive higher quality versions. Cheap clothing will start giving way before their more costly alternatives. Inexpensive electronic appliances will malfunction at the worst time possible. “Cheap things no good. Good things no cheap,” so says our Chinese friends. It is true that once in a while, the opposite might hold true where a cheap brand might perform incredibly well—but that is the exception rather than the rule. By and large, cheap spells poor—and customers know this.
So on this score, I want to believe the participants acted rationally. Or did they?
Anyway, one might ask, what all this had to do with customer service. A lot, if you ask me.
Customer service, as I have said on several occasions, is all about expectations management. But how are customer expectations built? Perceptions. What customers expect is based on what they think of the brand. But how do they develop those perceptions? From a number of sources, including how the brand is presented to the customer. If perceptions therefore helps in forming expectations, then it makes perfect sense that a business takes cares of what it puts out there about itself and its offerings. The packaging of the brand plays a critical role in customer perceptions.
Therefore, if the results of this experiment is anything to go by, then a brand must be presented in such a way that it is perceived as expensive enough to be appealing to customers but, at the same time, not too expensive to put off that particular target market. This is the balancing act that every business owner, manager and supervisor must perform on a regular basis.
Just as in the Veladone-Rx experiment, if customers believe the product or service is too cheap, it might turn them off. Too many businesses fail to see this angle when putting out a product or service on to the market. Just because a product is good does not mean the market would embrace it with open arms. Customers want to believe that what they are coming in for is worth their time, energy and money—even if the offering is not very expensive. Even if the offering costs just a pesewa, it must be packaged in such a way that customers are made to feel that they are purchasing something very expensive.
Additionally, even people who love the cheap things in life do not necessarily want to be seen as being cheapskates. Everyone wants to be seen as owning the finer things in life. Therefore, it is alright if a business packages even a cheap product as being “expensive”—although this must be done ethically.
In this direction, it is of great importance that front line staff do not speak down on whatever they are selling. In communicating with customers, they must make the customers believe that there is value in what they selling. Those at the front desk must not just say but they must believe it. It is part of great customer service to speak so highly of what you are selling that the customer will fall in love with over and over again.
This is one area in which the hawkers in our markets and on our streets do so well in. The woman selling loaves of bread that are two days would even tell you that they are freshly-baked loaves, just to get you to buy one. She would even tell you that she had eaten some that very morning and they were just delicious. She would tell an outright lie to make you feel that you were purchasing something that was worth it.
The Veladone-Rx study also raises a very interesting point about the giving away of gifts and freebies. It is possible that gifts that are seen as inexpensive or of low quality by customers might actually be counter-productive. Customers might not only treat those gifts with disregard but it might also affect their perception of the business in question.
Human nature does not easily change and that is why we are able to predict the way someone would behaviour in a given situation. Customers would continue to value and put their faith in products and services they perceive as being more valuable. So next time, you are having issues with customers patronising your products or services, maybe—just maybe—you should think of increasing prices. It might do the trick. Or it might not. You never know when you are dealing with the irrationally rational.