USA Today reports that Pizza Hut is rebranding itself. According to the article, Domino’s did something similar in 2009. Both companies are responding to shifts in consumer interests. Is that the right strategy?
As a pricing guy, it’s music to my ears to hear that a company is taking time to discover how customers’ interests are changing instead of lowering its price. True, discounting requires a good deal less thought than discerning subtle changes in consumer interests, but the price you pay in the long run is much higher.
Discounting is costly
Companies that lower their prices rarely, if ever, stem the tide of declining sales. If anything the decline is exacerbated. Why? Two reasons.
First, unhappy customers aren’t going to stay because the price is lower. You don’t have to trust me on this. Simply recall a time when you were unhappy with a supplier. What did you do? Did a lower price overcome your displeasure? If so, for how long? Inevitably, dissatisfaction overwhelms discounts and moves us toward what we really desire.
Second, happy customers, seeing a lower price, wonder “What’s changed? Is the quality still there? How did they get the price down? Were they overcharging me before?” In essence, they begin to look for things that are wrong. You can be assured that people with that mindset will be successful in finding something that will affirm their fears.
What to expect
Let’s recap the ‘benefits’ of lowering your price:
- You can’t stop unhappy customers from leaving.
- You risk triggering displeasure with your remaining customers.
- You reduce your revenue stream via discounting.
- Your cost structure hasn’t changed.
- Profits are declining even faster than revenues.
Otherwise, lowering your price is a perfectly fine strategy.
Some of you are wondering “What if customers don’t like the changes we make?” That’s where market research comes in. Both Domino’s and Pizza Hut have to discover how their customers’ tastes are changing. Do they want more variety? If so, what would they like on their pizza? What accompaniments would they like? Are they seeking a healthier alternative that still packs a lot of flavor? Is the current offering too spicy or not spicy enough?
These types of questions along with some taste-testing experiments helped Domino’s and, I’m certain, can benefit Pizza Hut as well. You can develop similar questions about your offering. Ask “What would you like to see this product or service do that it currently doing for you? What workarounds are you employing that you’d like to avoid? What would make your life easier when using this product or service?”
As you review these sample questions ask yourself “Given the risks of lowering my price, can I afford not to invest in this market research?” Then, instead of asking how many customers you might lose, ask yourself “How many customers can I gain by meeting the changing needs of the marketplace, especially if my competitors are busy lowering their prices?”
Don’t let declining sales trigger the knee-jerk reaction of lowering your price. Take a page from Domino’s and Pizza Hut’s playbooks and find out how your customers interests are changing.