Customer experiences are changing. So must your price!
In recent years, consumer packaged goods companies (CPGs) have invested significantly to deliver a better customer experience (CX) than their competitors. But most have overlooked the one factor that influences CX the most: Price. Now, savvy leaders are recognizing the untapped potential of price to create an entirely new kind of customer experience. Welcome to personalized dynamic pricing.
A new equation
In its simplest terms, CX has been defined historically as “price + product.” That has placed tremendous pressure on marketing leaders to set the right price for the right product. While new products and services might cost more or less, prices, once set, have remained largely consistent. Thanks to digital advances, the days of “set it and forget it” pricing are over. Digital has illuminated the fact that experiences are shaped by other fluid and unpredictable factors such as customers’ methods of interaction or their expectations or mindset at the point of purchase.
Prices can—and should—be considered as fluid as any other factor that influences the experience. The ability to adjust prices presents a tremendous opportunity for consumer goods companies looking to take their customer experiences to the next level.
The slow demise of list price
There are two factors that are shaping dynamic pricing in the consumer goods industry. The first is customer demand for better experiences. Many CPGs now engage with customers via multiple channels. More channel experiences translate into more opportunities to adjust prices to reflect the value of those experiences.
The second is smarter digital technologies. Better analytical tools such as pricing intelligence software, big data and cloud capabilities, coupled with more customer data, CPGs can now generate actionable insights and predict customer behaviors based on more personal and contextual characteristics. They can monitor prices 24/7, correlate huge quantities of information, and make faster and more granular price adjustments.
Gain affinity, not advantage
When managed correctly, dynamic pricing gives customers the right offer at the right time, aligned to their specific intentions and situations. The ability to tailor pricing in that way builds affinity and encourages customers to become active promoters. It also allows CPGs to reset their economics, better understand their cost structures, and improve their ability to
predict their future financial performance.
Optimizing the value of dynamic pricing requires companies to think about price as a function of the unique experiences they can deliver through each of their channels. However, CPGs need to ensure that what they offer in one channel is supported or extended in another—and priced accordingly.
Raise your pricing game
To build dynamic pricing into the design of their customer experiences, marketers should take six actions:
1. Adopt a new pricing mindset.
Move away from aligning price to the product alone. Similarly, think of price as more than a singular element of the customer experience. Instead, recognize that price is a reflection and quantifiable measure of the experience. As the experience changes, so must the price that is attached to it.
2. Walk in the customers’ shoes.
Consider all the factors that influence the buying experience, as well as the potential effects that a change in the sales context might have on customers’ expectations. At the same time, identify the data sources that enable a deeper appreciation of buyers’ lives, the environment in which they live, the issues they face, and their moods or mindsets at the point of sale. Armed with those insights, segment customers more precisely (and more empathetically), and create product and pricing offers that best meet their needs.
3. Harmonize price and experience.
Gain affinity and grow revenue by fairly correlating prices with the level of experience that is delivered via different channels. This may involve reconsidering the channel strategy and, for example, creating online brands to reach customers who are more interested in reliable supply or low price than they are in the shopping experience. But make sure your offline and online experiences work to complement, not contradict, each other.
4. Build the right team.
Establish strong governance structures to assign and facilitate pricing accountability, and match workforce talent with the experience that is delivered. Invest in building the skills needed to convert data into prices and experiences that customers want and are willing to pay for.
5. Focus on executional excellence.
Speed is a critical component of dynamic pricing. Make sure feedback mechanisms are in place to enable fast price changes. Accuracy is also important. Invest in the right tools and technologies to drive pricing efficiencies, uncover actionable customer insights, and deliver harmonized experiences.
6. Build agility into the organization.
Experiences are liquid. Prices are liquid. The organization that enables this fluidity must be liquid, too. Break down barriers that often stymie the delivery of high-quality CX by making sure that marketing, supply chain, customer service, financing, logistics and other areas are aligned to the dynamic pricing strategy.
The price is right
Sales and marketing leaders have long known that price and experience are intricately bound. CPGs that adopt dynamic pricing will be able to compete in entirely new ways and use customer affinity to drive growth. With pricing that accurately and fairly reflects the value of the customer’s shopping experience, they create mutually beneficial outcomes for themselves and their consumers.