In May I wrote a blog, The Myth of the Rational Consumer, in which I gave examples of consumers having problems with the cars they drove on the race track, but sticking with the brand anyway. In the subsequent five months, two of those car owners have reiterated that consumers often stick with brands and vendors for questionable reasons. Make sure your pricing strategies reflect this customer inertia.
In the previous blog, I wrote that one fellow driver, Ike, had just purchased his 3rd Corvette. I agree with him that Corvettes are great cars for the money and deliver outstanding performance at much lower prices than Porsche or Ferrari. However, when performance is not what the owner wants, it would make sense to look at alternative brands. Ike bought a 2015 Corvette Z06 to replace his 2007 Z06 this year. After three track events Ike was disappointed that his lap times in the new car were no better than in his old car. Although the new car puts out 100 horsepower more than the old car, his top speeds in the straights were slightly slower than in his 2007 model. The general explanation is the extra downforce on the 2015 car enables much quicker cornering but takes longer to get to top speed when going straight. Unfortunately in an attempt to improve his speeds, Ike turned off the traction control at his most recent track event and crashed the new car. Of course when discussing what he planned to do next, he said “Buy another Corvette.”
A second driver I wrote about, let’s call him Bill, owned 2 Loti (plural of Lotus). His first Lotus, the “Red Bitch”, had a series of mechanical problems that had cropped up as he tried to improve the car’s performance. After destroying his transmission in May, he switched to his other Lotus, the “Black Widow Maker”. Of course, he had a series of mechanical issues with that car also. When we asked why he didn’t just buy a different car he said, “The Lotus is too much fun.” So in August, Bill traded in the Black Widow Maker and bought a new Lotus, ignoring advice not to do it.
I spoke with Bill last week and he told me he was having transmission problems with his new Lotus, and he hadn’t even named it yet! When I suggested he sell the new Lotus and buy a different brand that would not have these mechanical issues, he replied, “but the Lotus is so much fun!”
Perhaps Ike and Bill are outliers, but there is ample evidence that many consumers act this way. 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 decisions we make and find evidence that confirms the wisdom of our choices. This happens with 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. Think about how often your company switches accountants, lawyers, electricity providers, telephone service and even janitorial service – very seldom.
It is very important to remember – 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, or vendors for certain types of products and then never switch. Customers like that will not switch products or suppliers for modest price differences. Do not focus your efforts on trying to match low prices when selling to them. Spend your time focusing on building product or provider loyalty with great quality and service. The prices you are able to sell will reflect that loyalty.
Leave a Reply
Want to join the discussion?Feel free to contribute!