November 30th 2011

Speaking about Value – research tidbits

United (States) Parcel Service.

Image by matt.hintsa via Flickr

Some recent articles on value, pricing and sales came across my desk last week.

You”re pricing it wrong from SmashingMagazine .  You’re pricing it wrong is by Fran Galperin.  He presents some very compelling arguments making this a useful read for all.  I  I picked up on two definitions of value he used,  Perceived and Objective value.   In his words, “You can set a higher price without changing your product just by changing the potential customer’s perception of the product.”  Objective value is how much would people pay if they were indeed rational decision-making machines. “

He believes that buyers are not logical, rationale decision makers, but are much more emotional about decisions, giving the perceived value more importance in a sale. “Vendors can improve the perceived value through marketing with such things as copy, visual design, and demos.” In our research we have seen how marketing has just such an impact on presetting the reference price of a product and contributes to the the retention (or loss)  of value through the sales process.

The Sales Lead Black Hole ( download)  from Penn State Business school – marketing is a scholarly analysis of why 70% of marketing’s leads are not followed up by the sales team.  It is good research and could be one of a kind in this area.  In the summary they say,”

“We find that sales reps spend more time pursuing marketing leads if they

perceive their firm has an effective sales lead prequalification process.

We also find that as sales reps become more experienced, they are less likely to:

  1. pursue marketing-generated leads,
  2. respond positively to managerial tracking of marketing lead follow-up, or
  3. respond positively to greater marketing-generated lead volume.

Our results also show that the better the sales reps’ past performance, the more likely they are to respond positively to

an increase in volume of marketing-generated leads and respond negatively to managerial tracking of marketing lead follow-up.”

This is material that gives good directions for how sales managers can make a greater impact on the team performance.  It is academic but is very direct in application and well worth the read.

Exploring Price Fairness Perceptions in China and U.S. by Lisa Bolton, associate professor of marketing at Penn State’s Smeal College of Business, along with Hean Tat Keh from Peking University and Joseph W. Alba from the University of Florida, Pennsylvania State Business School.   Fascinating bit of research.   E.g.

  • Bolton, et al  find that both Chinese and American consumers judge it fair to pay a lower price but unfair to pay a higher price than paid by another customer. In other words, “what’s good for me is fair”—a kind of egocentric bias at work.  However, the Chinese are especially sensitive to the type of comparison. For example, Chinese consumers judge it unfair to pay a higher price than a friend but are indifferent to the price paid by a stranger. In contrast, Americans are indifferent to the friend-stranger distinction, judging it equally unfair to pay a higher price than paid by either a friend or a stranger.
  • These findings reflect the tendency of Western cultures to possess an independent, individualistic identity, whereas Eastern cultures are interdependent or collectivist in nature. Bolton says the Chinese “view the world as a network of social relationships and are, as a result, strongly oriented toward the in-group (friends and loyal relationships).” In contrast, Americans see the world in terms of independent and autonomous individuals and are less sensitive to relational information.  For example, prior research shows that Americans perceive friends, coworkers, and business owners as equivalents, but such is not the case for the Chinese, who put greater emphasis on their personal social networks.
  • Another concept that comes into play in the research conducted by Bolton and her colleagues is a culture’s sensitivity to mianzi or “face.”  Face is defined as status earned in a social network, and a person can either gain or lose face depending on the situation. Keeping in mind the difference between the collectivist Chinese consumer and the individualist American consumer, Chinese consumers typically experience a greater loss of face if they pay a higher price than a person in their in-group as opposed to someone in an out-group. For example, paying a higher price than a friend affects the Chinese consumer’s status or “face” within the social network and is experienced as a feeling of shame. In contrast, the American consumer tends to feel anger at paying a higher price than another consumer, friend, or stranger.
  • Ultimately, consumer price fairness response and emotional reactions affect customers’ interactions with the firm in regards to purchase intent. For example, American consumers report lower intentions to re-purchase after paying a higher price than another consumer, whether friend or stranger. Chinese consumers are less likely to re-purchase after paying a higher price than a friend, but are unaffected by what a stranger paid.
  • Interestingly, the cultural differences in sensitivity to relationships among consumers also extend to relationships between consumers and firms. The researchers find that “Chinese consumers judge it unfair to pay a higher price than another customer when in a loyal relationship with a firm but are relatively indifferent when in a first-time buyer situation. In contrast, Americans judge paying a higher price than another customer as unfair regardless of past loyalty to the firm.” Again, the results appear to be driven by face:  Chinese consumers experience a greater loss of face when they pay a higher price to a vendor with whom they have a long relationship as opposed to a new vendor.

These findings by Bolton and her colleagues suggest that price perceptions are more a matter of psychology than economics—with many implications for marketers, particularly in the areas of dynamic pricing and relationship marketing. If consumers feel that dynamic pricing is unfair, marketers can defend themselves against consumer backlash by using differentiation to reduce the impact of the price comparison. Doing so may be especially important with American consumers, who will resist paying a higher price regardless of the identity of the other consumer.

In terms of relationship marketing, conventional wisdom states that loyal consumers are less price sensitive, so they’re willing to pay a higher price. According to Bolton, “Our research suggests that, if anything, loyal consumers are more price sensitive.” Americans are equally sensitive regardless of whether they’re loyal or first-time buyers, and Chinese consumers are more price sensitive when loyal. As a result, marketers need to take into account the importance of culture, and the role of social networks and personal relationships, in order to effectively market their products in the United States and China.

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