A Nice Story to Start With..
We do not buy our meat at the local butchery very often. For reasons of convenience and price we settle with less quality than we would actually want, but hey.. such is life. And I assume we are not the only ones. That’s why I was so positively surprised when my wife returned from the butchery a couple of weeks ago and started collecting our kitchen knifes. The owner offered her to sharpen the knifes, free of charge, because we would need them sharpened for cutting our meat into a home made ‘steak startare’. “That’s an entrepreneur who gets it”, I remember saying.
Ending Like Too Many..
And because of this excellent experience we decided to shop at the local butchery more often. And so we did. This week they had a nice ‘family’ offer that we wanted to buy, not once, but twice. And that’s when they told us that we could only have one per family. Not a real problem, but for the fact that what followed was a ramblings full of complaints that ‘people’ just could not expect the butchery to have unlimited offers etc etc.. We took home the offer and some more, and talked over dinner that we were really disappointed with the experience..
The Simplest Of All Business Models
I did not put much thought in this experience, until I read this excellent post: “the simplest of all business models” by Rags Srinivasan. He describes the challenge coffee-shops have with pricing their service because of the “free wifi” offering that seems to be mandatory these days. Everyone recognizes the ‘free rider’ who occupies a table all morning on just one latte or doppio.
These ‘negative’ side-effects of the offering are often mitigated by either charging prices one would be imprisoned for in Italy, or by sweeping tables really often and ask ‘politely’ if one would like another drink. Others may limit the time free wifi is available on one drink. All mitigation-measures that harm the Customer’s experience. It’s the mechanism that is sparked when pricing schemes are not aligned with how value is created by Customers. It’s the same mechanism that made my butchery do what they did.
The mechanism is known in all industries, e.g. when discounts are only available if ordered on-line, are limited in time or quantity, or when returning goods is not allowed for discounted articles. And what to think of a lowest price guarantee within a five mile radius and compared to only a couple of other brands?
Making It Complicated
All these measures of mitigation are not only making the experience overly complicated, they also are ways of telling Customers: “we can’t afford the offer we made you, and you should understand that.”
Well, as a Customer, I don’t want to understand, I don’t want to consume a service for which I need to read the fine-print first, or need to think ahead of what ‘might happen’ so I can calculate if I want to take the risk of accumulating costs and effort when that risks occurs. I don’t want that because frankly I don’t have the time, nor the brains that can do all that at the same time. And I most certainly do not want to feel like I want something that seems to be considered ‘unfair’, something that makes me feel like I’m being a ‘pain-in-the-***’. And I don’t want the hassle either. Oh, and I only want to pay a fair price, not your fair price, but mine!
The Way Out
I do believe there is a solution to this Pricing Effect Mitigation Trap. That solution is adjusting your price model to the job a Customer is trying to get done, in other words: to the desired outcome and experience resulting in that outcome. In my comment to the earlier mentioned post I said it like this:
“many entrepreneurs these days recognize that they do not provide a single service for a single job-to-be-done. Instead they recognize they are platform hosts that allow multiple parties (including themselves) to serve multiple user-segments for multiple jobs-to-be-done. The coffee-shop could also be seen as such a platform, allowing business users to meet and work, allowing tourists to have some security from the fact that the coffee is as good as it is at home and allowing others to feed on their need to stay (or get) awake.. The coffee-shop is a place for multiple parties co-creating all kinds of value
Recognizing different segments by their jobs-to-be-done (in context) and offering different pricing options (bundled, or unbundled) based on how they like to consume the value offering and their willingness to pay for that, would be the way to go..
This could include the “work -fast connected- all day with as many coffee as you want for a fixed fee”-offering as well as the “your-morning-shot-to-go”-offering or the “catch-up with a friend over coffee”-offering.”
I have to admit that I find it quite easy to come with Customer-job-based segmented offerings for Starbucks, yet not so easy to do the same for e.g. insurances.. Maybe you can help?
So, what do you think? Is pricing for different jobs-to-be-done a way out of the Pricing Effect Mitigation Trap? Does pricing in line with Customer’s value creation process and desired outcomes prevent you from delivering a disappointing experience? And, equally important: could it prevent you from leaving value on the table? Let me know what you think!
p.s. If you want to read more on when and how to apply the job-to-be-done framework I suggest you read “A Method For applying Jobs to be Done to Product and Service Design” by Hutch Carpenter. An excellent, pragmatic starting point!