Why You Don’t Want a Perfect Customer Satisfaction Score

I was recently introduced to the concept of 91. 91 is the theoretical score out of 100 that a business person would want from a customer satisfaction survey (10 points for 10 questions each). Why only 91? Why would you not want to exceed expectations on every facet of your business? Logically, you want 10 points out of 10 for every question, right?

Wrong, says the president of a major, global, industrial manufacturing company.* This person says the one question you want a 1 out of 10 on is about price. The question “Is our price competitive with your alternative suppliers?” or something of that nature, should garner your company a flunking score.

But if your customer satisfaction survey returns a 91, it means you are exceeding expectations everywhere else, and hopefully, that your customer prefers to use you to your competitors for the value you bring to the table. A score of 91 also means that your company is not leaving money on the table.

According to the McKinsey book, The Price Advantage, a 1% increase in pocket price (the price a company actually receives after all discounts) can result in an 11% increase in profits, which is more improved profitability than any cost reduction strategy, including reducing variable and/or fixed costs. Furthermore, if that 1% is justified, volume should not decrease. The moral of this story: pricing is critical to a profitable business. The right price may not be where your customers want it to be, but they will pay it if your product or service offers a value that exceeds the price tag.

*I heard this person speak in a Pricing class I am taking, and I'm not sure if he'd like his customers to know that he wants to make them cringe over the price!

You Get What You Pay For?

You’ve heard the old adage “you get what you pay for,” but I’m not so sure that is true anymore. With the internet, product pricing is very transparent, highly accessible, and quick and easy to find. You can go to many product websites, review sites, or, if you're so inclined, to a brick and mortar store and get advice, guidance, recommendations on a product. At an physical store you can actually hold and test a product, see the actual size, etc. Then you can go back home, free of stress and sales people and crowds and search around for a bit to find the best price. In a couple minutes, you can have that product paid for and sent to your home. Now to the kitchen for a cookie!

So are you getting what you pay for? This used to mean that if something was a higher price, it was generally assumed to be better. But now, you just might have found a great deal. Maybe there is a site that had overstock of a product. Maybe a store is having a random Tuesday sale. Maybe you found your product selling at a discount rate for one day only on woot.com. Maybe you found it on ebay. Maybe, you emailed a variety of retailers what you were willing to pay for a product, and the one that got back to you first with an acceptance for that price got your business (I did that for my Kia minivan…a new 2006 cost our family less than a used 2005! Not that I like Kia, as I’ve come to find out, but that’s a different story).

This evolving pattern of consumer behavior has changed the way I view products. It used to be that I felt somewhat superior having a product that cost more than a competing product. With the proliferation of “retailers” carrying identical items, I have a harder time using product price to estimate value. The more personal, interactive, participatory behaviors of web 2.0 are shaping how we define worth, forcing companies to communicate brand in a proliferation of context driven ways. (Brian Oberkirch describes this as edgework, a fascinating concept which I am still trying wrap my head around.)

Is Radiohead's Pricing Experiment a Sign of Things To Come?

By now, the Radiohead set-your-own-price-for-their-CD event is old news in the blogging world. 1.2 downloads in the first week at roughly $8 a pop. I'm not even a Radiohead fan, but I am intrigued by their unorthodox pricing experiment, and what it means to the future of transaction pricing.

Presumably, Radiohead wanted to tap into the emerging social networking phenomena. Their fans are likely an Internet savvy, texting-obsessed, MySpace lovin' group. It just so happens that this demographic is comfortable "sharing" digital versions of music with each other, or would maybe pay only for a song or two. Radiohead (and their label*) likely hopes to find extra album sales from these folks who would otherwise not have shelled out for the entire compilation. Their willingness to enter into this type of transaction is a proclamation that they respect and trust their fan base. As a financial consideration, it is evidence they are confident in their brand equity and reputation.

This pricing strategy is especially uncommon because it has to do with intellectual property. Simple economics dictates that if an owner of intellectual property is not compensated for their contributions, there is lack of incentive for future innovation (aside from artists, think pharmaceuticals).

However, as an adoption strategy, the logic behind this type of pricing isn't new. For example, weight management (and social networking) website thedailyplate.com (TDP) is a community of over 100,000 people using TDP's free on-line food tracking software to track their caloric intake. Users have the option of paying a fee for some lite-weight bonus features. And devoted TDP users do, despite the fact that the bonus features are little more than the addition of some cute graphics and priority for service requests. But their is no requirement, no hassling, no annoying emails, no pressure whatsoever to contribute. Those that contribute have determined there is value in TDP, and want to see it succeed.

Many websites offer free services, and (like thedailyplate.com) get much of their revenues from advertising. But with online ads having questionable relevance and low click-thru rates, they may have to modify their business model to stay profitable. Has Radiohead shown us that if there is trust and respect between business and consumer, the goodwill will work both ways?

This is a level of participation and collaboration that is relatively rare. Web 2.0 principles are ushering in new behaviors between business and consumer. Beyond marketing and communication, traditional pricing for products and services may be challenged by this participation-driven phenomena. As an afterthought, I'm struck by the similarity between Radiohead's fans determining their album's value, and tipping a waiter or waitress for their service. Could the the future of payment be determined on value after the fact?

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*Ammendement: According to The Week (11/9/2007) Radiohead released their album online with this pricing experiment without any help or guidance from their label. In fact, Radiohead frontman, Thom Yorke, says "...you have to ask yourself why anyone needs [a record label] anymore." The music industry's decaying business model is leading artists to explore new ways to distribute their work.