How Much is Service Worth?

Aug 23, 2004

By John Hennessy

Two-thirds of American consumers are willing to pay more for selected services
in exchange for better service, despite lower prices being a primary reason
for switching service providers.

That paradoxical conclusion is from a survey of 1,000 U.S. adults conducted
by Accenture.

Better service is a motivator for switching for 27%. Yet when asked about factors
that would have them switch providers, 24% emphasized lower prices.

According to John Freeland, global managing partner for Accenture’s CRM practice,
“Clearly, a correlation exists between the services that consumers value and
what they’re willing to pay. Not all things are equal, and consumers may be
willing to make trade-offs for low-value services.”

Moderator’s Comment: What is service worth in keeping
existing and getting other customers to switch to you?

Winning the hearts, minds and wallets of shoppers isn’t
easy. Lower prices beat better service 3 to 2 as a decision for switching, yet
65% say they are willing to pay more for better services.

One of the keys to the seeming inconsistency in these
findings is that consumers are not willing to pay more for services with which
they are the least satisfied. It pays to periodically survey your shoppers to
understand how they perceive the services you are offering.

So, do you focus your efforts on lowering prices or improving
service? Unfortunately, the correct answer is both, “It depends,” and “Both.”

If your service is lousy, your prices are high and you’re
not the only game in town, your business cannot sustain the higher prices. You
need to get your prices down. You then face the difficult challenge of intelligently
improving your service level to justify higher prices. Lower margins during
your service rebuilding make this a tough proposition.

If your service is terrific, your prices are low and business
is good, consider raising your prices. This is your reward for the services
you are offering. It’s also a way to generate the margin improvement you need
to continue to improve your services. And you’ve demonstrated that you will
wisely spend margin on service improvement.

If your prices are low, your service is good but shoppers
are not responding, find out why. What are you doing that you think is valuable
but shoppers don’t? What do shoppers want and value that you could offer but
haven’t considered?

If your prices are low and your service is low you may
be surviving, but you’re probably not having much fun.

John Hennessy – Moderator

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