An important rule I teach in the Price course is that confused buyers don’t buy. If you have a complex price list, then this is your buyer’s experience.
He has a 30-minute break between meetings and picks up your price list to figure out what the company needs. He spends the entire time trying to determine which parts go with which other parts, what options he needs and why one option is better or more expensive than another option. After 30 minutes, he needs to go to his next meeting and puts your price list back on the corner of his desk … never to be looked at again. Confused buyers don’t buy. They are afraid of making a mistake.
One way to simplify your buyers’ decision is by creating a good, better, best product line. We’ve discussed that in this blog before.
The hard question for today is: Should pricing ALWAYS be simple? Although I’m tempted to say yes, there are examples of very successful companies in industries that have confusing pricing. Cell phone service is an example. I’m pretty sure I signed up for an $80 per month package with Verizon, but my bill is never $80. My wife and I use the same data plan, and there’s an extra fee for that. I’m making payments on my phone, another fee. I have an international plan, more fees. I went to the Verizon Web page to figure out why my bill is what it is, and I can’t figure it out.
I was thinking the other day, should I switch to AT&T? After all, I would get a discount on my DirecTV bill (another very confusing bill) if I switch. I asked the AT&T guy what it would cost me and, of course, he told me a number lower than what I pay to Verizon. Should I believe him?
Wireless providers intentionally make their pricing confusing to keep us from easily comparing plans. They have the low teaser rate, but by the time you actually get what you want you don’t really know how the price got so high.
Why do they do this? Imagine they had an all-inclusive, no extra fees pricing model. Now it’s very easy to compare Verizon and AT&T. Regardless of what they want us to believe, there isn’t a huge amount of differentiation between them. That leaves price as the main feature we would use to compare providers. That would cause price competition, driving down margins and profitability.
In the absence of product differentiation, obfuscating pricing can reduce price competition.
Another reason wireless companies get away with it is we (okay, I) have to have wireless plans now. They are vital to our existence. At least they feel that way. We will jump through hoops to buy the service, while we may not for a product that wasn’t as important.
Confused buyers don’t buy is a great rule to price by. But like most rules, it isn’t universally true. There are exceptions. Just be very careful when you break the rules.