If customer says that “you are expensive”.

Working around 8 years in Telecoms and especially when the company is biggest in the country opens for you different perspective to the customer insight and behavior. I think I should be really happy experiencing the real marketing in telecom market where high competition exists and scalability is high.

There is one comment which I hear as default from customers. It is – “You are expensive” comment. I have been investigating insights of this comment a lot and today want to share with you different approached views on, why customers might say that and is that good for business or not.

Firstly let me start with the main competition roles in the market. You can be whether Leader, Challenger or Follower and company behavior differs for each of them.I’ll try to in short give a view on those roles.

  • Leader – Leader companies are the ones who has the most market/revenue share, the first who introduces/adapts head of industry/innovative services and of course who has the best customer services
  • Challenger – Mainly the second/third/.. in the market, whose main target is to become first and take the leader position. Challengers always compete with Leader and focus on key characteristics of the Leader to overcome them. They are also the main starters of price wars.
  • Follower – Followers are rather waiting for the new market conditions and then adopting their product and services to Leaders and Challengers approaches. Followers are playing most cost effective game but they are lacking on controlling their destiny since they are indirectly depended on market and competition environment.

Let me give some examples from the worlds different industries.

  1. Smartphones – Apple – Leader , Samsung Challenger, Blackberry – Follower
  2. Car technologies : Mercedes Benz – Leader, Hyundai – Challenger, Lada – Follower
  3. ….

Now lets think about the leaders characteristics and try to shape the map.

  • They are first with new concepts – Apple (ex, first Siri), Mercedes (ex, active collision protection)
  • They have best reach to customers, they are everywhere.
  • They have the best quality and the longest guarantee of product/service.
  • Selling at premium , being expensive than competitors.

I want to focus on the last point which i mentioned here. Being expensive. Customers like to complain about it and it is the top of the mind thing which comes to the mind. Now lets investigate different cases why it happens and how it impacts the company.

  1. Good stuff are expensive – Do you agree that it is right saying ? I think yes. But, i’ll not agree with the different version of it which is “Expensive stuff is good”. This is the trick mainly used in the markets when the customers do not understand how to evaluate the product, which is of coz not right way of doing things. Good stuff is expensive, because, it cost to build and sustain the high level of customer expected quality. Lets think about the Marcedes Benz, which is expensive, but they have huge costs on R&D just to build and put the innovations into the new cars. In telecoms case , it is count of Base stations, it is service count, it is number of customer care workers you employ and much of others. It is obvious that your cost side is higher than everyone else, which means probably higher end produce price.
  2. Future investments are done with todays money – In order for a leader company to be able to catch the trends and always offer latest technologies, it needs to invest quite early in order to be ready for future. Those huge investments are sourced of course from the premium of the current product price. You can argue that it is expensive, and company earns much, but if company only covers its current costs then in few years customers should not expect new technologies and best trends. Future Investments are to make sure that customers get the latest and best service.
  3. Relative price versus nominal price – I have been always surprised by people who drive big and expensive cars, having latest iPhone on their hands and complaining about the high prices of the communication. Their car spends 20 liters of petrol per km, 10 liters more than normal car, their phone costs 800 EURs which is more than twice expensive than similar functional alternatives, but what is the reason that of this unsatisfactory complains. Actually, people like to feel themselves smart and doing best selection but not always thinking about what is the impact in money of their decisions. For example, if you talk 200 minutes/month and the tariff difference is 5 cents versus 4 cent, then at the end of the month your payment difference will be only 2 AZN. In comparison to the Petrol spending with average of 1000Km/month where you will get around 70AZN extra payment (extra 10 liter * 0.7AZN/km *1000km/100km =70 AZN) payment of 2 AZN for un-interrupted communication should not be a surprise. In comparison with spending for the handset, which is in average will stay on your hands for next 2 years, it means extra 20 AZN spent a month (800AZN-300AZN(decent smartphone price)=500AZN/24months = ~20AZN/month). Again in comparison you get real picture.
  4. Maximized WTP (Willing To Pay) – Companies are focusing on maximizing their profits , therefore they are looking for optimal balance between the price of product and the count of the sales. WTP, is the best indicator which can show to company what is the maximum amount so that customers are ready for paying for the particular product. If you ask customers about their WTP on product they will probably lie and tell very low level, whereas by doing different types of analysis (for ex, conjoint analysis) you can probably spot the best price levels. Just imagine that you are in bazaar and you are selling potatoes, and even do everyone complains that price is high, you make all of your potatoes sold by the end of the day. This means that WTP is higher than what they say which is quite normal in current market. Once company guesses the WTP in best way that means that they cover better the opportunity revenue of the market and there is balance between count of customers and their total sales.

Overall I’d like to mention that you should not always stress when your customers says that you are expensive. If you have been doing clever , number based marketing then you are most probably safe, otherwise, you have to take into the consideration before it is too late.

Good luck with your business and very lovely customers !

Regards,

Imran Baghirov