We often tell our clients they should pay more attention to how their customers behave rather than what the customers say. We don’t mean to imply that clients should ignore customer feedback; but customers do not always act the way they say they will. For example, they will often say price is the most important thing, and then decide what to purchase and where to purchase it based on other criteria. One helpful technique for understanding real customer behavior is conjoint analysis, which is a market research tool that measures customer trade-offs.
I was recently discussing the labor market with the CEO of an industrial services company. He said they were having difficulty attracting enough qualified employees, and that was limiting their ability to grow. When I asked why he didn’t just offer more attractive pay packages, he said it would be counter-productive. There is a limited pool of qualified employees; and offering ever greater compensation just enables them take employees from competitors, who could do it back to them. He essentially described a reverse price-war, and correctly pointed out that nobody wins price wars. While I agree price wars are harmful, I believe there are lessons the CEO could learn from dynamic pricing.