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106 Managing Customers Through Economic Cycles

Focus on “what customers do”, not “what they
say they’ll do” relative to price sensitivity

As economic conditions cycle through their inevitable pat-
terns, businesses need to understand how consumer behav-
ior evolves relative to price sensitivity. It is common to ask
customers what they are sensitive to in relation to price
changes. Often, however, what they say they are sensitive
to and how they behave relative to a price change are two
completely different realities.

Although surveying customers regarding their price sensi-
tivities is a common practice, it often leads businesses to
create pricing strategies that are inconsistent with their objec-
tives because customers are inconsistent when it comes to
what they verbalize their projected behavior will be and how
they actually end up behaving.

A major vacation destination company wanted to explore
whether their customers would pay a higher price for their
destination packages if they bundled ancillary add-ons into
the package price, e.g. health club access, local phone
calls, bottles of water. One of the motivations behind bun-
dling many of these items was to migrate them away from
the “lightning rod” category, as customers were reacting
strongly to their unbundled price structure relative to
similar items available for much less outside the destination
location.

While the customers had said they wanted things more
packaged, the reality of them using the cheaper “street”
priced products didn’t support that. This vacation destination
company ended up bundling certain items but keeping other
lightning rod items separate with an adjustment on those
prices so they were closer to the competing street price. The
strong negative reaction of the perceived sizable price dif-
ference was not worth the negative effect the additional
margin had on the customer experience.