Two weeks ago I wrote a blog Race for Better Service, Not Lower Prices, in which I discussed sports-car owners changing service garages because of poor service. This past weekend I participated in a driving event with car enthusiasts at Watkins Glen International which reminded me that many consumers really don’t like to switch products or providers. Apologies to Bryan Caplan for blatantly copying his title, but he pointed out in The Myth of the Rational Voter that voters often pick a candidate early and then stick with that candidate. They find it is not worth their time to do detailed research on candidates and the implication of candidate policies. Also, by sticking with their initial choice, voters never have to conclude they made a bad choice. Car owners, and indeed many consumers, behave in exactly the same way.
At the Watkins Glen event, like all of these driving events, the range of cars was wide. There were Audis, BMWs, Corvettes, Ferraris, Mustangs, Hondas, Lotuses (or is the plural Loti?), Mazdas, a Mini-Cooper, Nissan GT-Rs, several types of Porsches, Scions, Subarus, Vipers, and Volkswagens. In talking with the drivers, there was clearly an emotional component in their decision making. Some of the car owners brought different cars to the track than they brought last year, but nearly all were the same brand as their previous car. One fellow driver had just purchased his 3rd Corvette.
A leader of the club that organized the event has been driving a Porsche GT3 for several years. He drives his car very quickly but he also recognized that his car had significantly less power than some of the newer cars, and he thought he might want to upgrade sometime soon. When I told him the newer Corvettes and Nissan GT-Rs offered incredible performance for significantly less money than a comparable Porsche he agreed. However, he also smiled and said, “I just couldn’t do that. They’re not Porsches.”
The driver of the black Lotus pictured in this blog also has another Lotus (the Red Lady). He has been taking the Red Lady to racetracks for several years; and although it is very fun to drive, it has less horsepower than many of the other cars at the track. To get more horsepower over the past few years, he began to add superchargers, turbos, and other components that would allow him to drive faster. Although he could drive faster, he began to experience more breakdowns, which is why he had brought his black Lotus to the event. I asked him why he didn’t solve his horsepower problem by buying a different type of car. He replied, “I just can’t. The Lotus is too much fun.” But obviously the breakdowns are not much fun.
Similarly, my own car had excessive tire wear at 2 track events last year, limiting my driving time. While the tire wear problem has been solved, my brakes were overheating this weekend. One of the other drivers suggested “Wouldn’t you have more fun with a slower car that could participate all weekend?” Of course l rationalized my choice by saying the tire wear had been solved and I was sure the brake problem could be also. Just like the Porsche and Lotus owners, I was emotionally invested in my decision.
It is not just car owners and voters who make emotional decisions. In Predictably Irrational, Dan Arielly demonstrated many examples of how people often make decisions that in retrospect might not have been the best economic choice for them. But most of us do not want to conclude we made a bad decision, and we don’t want to take a risk that changing the decision could be even worse, so we stick with the decision we made and find evidence that confirms the wisdom of our choices. People make buying choices in much the same way both for personal items and in business. Once we have made a choice, inertia takes over and we stick with that choice. Unless something significant happens, we prefer not to re-evaluate our buying decisions. And the more emotion that was attached to the original decision, the harder it is for us to re-evaluate. Some readers may remember that in my last blog post, I described car owners who switched service garages due to service failures. That was not a contradiction to my point today, but reflects there was much more emotion attached to which car to drive and where to drive it, than in the choice of where to have it serviced.
The point of all this is – when setting prices we need to consider how our customers really make their decisions. Many customers decide the brand of a particular product to buy, and then never switch brands. Customers like that will not switch products or suppliers for modest price differences, and when you are selling to them, you should not get hung up on trying to match low prices. Spend your time focusing on building product or provider loyalty. Ensure that your quality and service are not disappointments, and your customers will be much less concerned about the price.
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