How to Use Data Driven Marketing to Minimize Sticker Shock - dummies

How to Use Data Driven Marketing to Minimize Sticker Shock

By David Semmelroth

Prices do go up, sometimes significantly and applying data driven marketing strategies can help minimize sticker shock. Trying to sweep the increases under the rug is a risky strategy. Businesses don’t hesitate to sing loudly and often about price decreases. When prices go up, it’s worth telling your customers your side of the story. They might just understand.

These examples are not, strictly speaking, related to event triggers. They do however relate directly to customer retention. How and when you communicate rate or fee increases to your customers can make a big difference in their willingness to pay them.

How data driven marketing is used to explain your situation

Imagine having a membership at a local golf course. The membership dues were collected annually on the anniversary of you joining the club. Every year they would send you an invoice for the next year’s dues. Predictably, the dues increased every year.

But the size of the increase was not predictable. Some years it was nominal, and others it was huge. In either case, no one knew how much it was until they saw the bill.

Over time, membership shrank. The problem was sticker shock. Some members were so annoyed at the large increases that they never bothered to find out what they were for. Even had they known, their annoyance might well have clouded their judgment about whether they were worth it. The point of this story is that people really do shoot the messenger.

Now suppose a couple walked into the clubhouse around the time the dues increase went into effect to inquire about joining the club. The marketing director would give them a tour of the facilities. She would explain that some work was being done on the golf course and why. She would treat the course improvements as a selling point. And she would quote them the new higher membership rate.

Why not give the current members the same treatment? Instead of just sending them the bill, why not give the same sales pitch as a prospective member would get? You could even organize a tour for the members to explain the planned upgrades. For the members, the improvements would be readily understood because they’re familiar with the course.

The golf course missed an opportunity to anticipate the negative reactions to their price increase. Simply acknowledging and explaining the increase would have gone a long way toward softening the sticker shock. “We’re finally getting around to solving that drainage problem on the 14th fairway. Unfortunately, this is going to cost a little bit to do.” That’s a far better message than an invoice.

When you increase prices, you’re going to have to convince new customers to pay those prices. You generally do this by highlighting the quality and value of your product. You need to convince your current customers as well. But with your current customers, the discussion needs to be about the added value related to the price increase.

How to give your customers alternatives

You might have a love/hate relationship with your cable/Internet provider. Over the years, maybe you’ve been somewhat trapped by the lack of alternatives and have often resented the fact that your provider seemed to behave as if it knew this. As the market has gotten a little more competitive, that provider has actually adapted fairly well.

Imagine you recently got a notification that the cable modem which they provided upon installation was no longer going to free. They were going to institute an additional monthly fee to rent it to you.

When you saw the amount of the rate increase, your initial reaction might be “Just when I was starting to like you! I could buy a modem online for the price of six monthly rental fees!”

Now, five years ago, this company would have just included a note on the back of your bill and applied the increase. But as you read this fee increase notification further, they actually addressed your frustration directly. They gave you an alternative.

They had anticipated precisely your reaction and acknowledged it. They explicitly told you that you could avoid this fee increase by purchasing your own modem. And they were careful to point out that you didn’t need to purchase it from them.

The cable company obviously lost a potential revenue stream when you did purchase your own modem. But that revenue stream is small. It pales in comparison to the monthly bill you’re already paying.

The strategy of offering alternatives to fee increases is especially important in industries where there is significant competition. It’s almost essential if the industry also suffers from a generally negative public perception.

If customers are already primed to take their business elsewhere, then any fee increase could be the straw that breaks the camel’s back. Banks, for example, are well aware of the need to waive fees to protect profitable relationships with their customers.