One of my clients is a tire retailer. You know, one of those places where you buy tires at the counter for your car, and then you wait while they change your tires. They are better than their competition for a long, long list of reasons. For that reason, they are able to command a reasonable price premium in the market, but this blog post is not about how value drives price. (Umm… we’ve covered that a TON.)
Instead, this post is about something else that I love to talk about: we as the sellers are more price sensitive on behalf of the customers than the customers are themselves. For my client, historically the retail tire discounts were deeper on Monday through Thursday than they were on Friday and Saturday. Why? Are tire customers in some fundamental way more price sensitive on a Tuesday than they are on a Friday? The true answer of course, is that the customer is not more price sensitive. We discovered the underlying reason was that the tire shops were slower during the week than they were on weekends. Sales people were quicker to offer discounts when there was only one prospective customer in the shop on a Wednesday afternoon, whereas they never discounted when there were five customers waiting in line on a Saturday morning. In truth, there is NOTHING about the weekday customer which makes him in some fundamental way more price sensitive. (In fact, that customer will get faster service, which may reduce price sensitivity.)
Do weekday customers ask for discounts? Yes. Do weekend customers ask for discounts? Yes. Because all customers always want stuff cheaper. But weekday customers get discounts far more than weekend customers do. Not because weekday customers are more price sensitive. Because the sales team believed they were. Because the sales team believed they had to discount to get the business on a Tuesday and had more confidence on a Saturday. (Hey guys, are those extra special Saturday tires or something? Why are they worth more?)
We as the sellers overestimate price sensitivity of our customers because our customers tell us our prices are too high. Have you ever had a customer tell you the price was too high and then ultimately buy from you anyway? Remember that their feedback is polluted with self-interest. They aren’t jerks or crooks or bad guys, but we have to be careful about letting customer feedback limit our confidence about our value.