my comment on seth godin’s post “breakage”: be careful with your customers
Seth Godin‘s blog doesn’t seem to allow comments, so here we are.
I really like the theme of his most recent post, “Breakage“: you have to be careful with your customers. You might go years upping prices bit by bit, then all of a sudden lose half your customers before you know it. Massive swings like that can happen whether making just a slight change to your pricing, or what you offer, or your tactics. Here’s the last bit of the post: (although you should just read it–it’s short.)
When you hit the breaking point with one person, it might be 1,000 or 100,000 people who do the same thing at the same time. And you don’t get a second chance. They’re gone.
It’s not just money. It’s service. Or trust. Or spam.
You can stretch a rubber band for a long time. But then it breaks.
I heartily agree. But he neglected to discuss what that company should be doing differently: it’s something so many businesses should be doing, and _especially_ businesses with a big customer base, since it’s so easy in the internet age. Test.
Test new products internally, then with a limited set of your customers, before offering them to everyone. Test advertising messaging, test landing pages, test changes to your checkout process if you’re in e-commerce. And if you need to make pricing changes, absolutely test those changes before rolling them out to every customer. Testing is the clear victor over focus groups, surveys, or any other method of gauging customer preferences without them actually making the decision in question. If you ask them how a change in pricing would affect their decision, you won’t get the right answer. If you serve 5% of your customers a different price, you’ll quickly know if it’s a good or terrible idea.
Maybe Seth’s insurance company, in fact, was merely testing pricing changes, and he happened to be in the 5% of their customers randomly selected to get the highest price increases, year after year. If so, then Seth’s departure has just given them some very valuable information they can now apply to their pricing model for their customer base as a whole. My gut tells me Seth’s right, though, and they’re just raising prices for everyone by the same amount, year after year. If so, then as he suggests, they may have made an unexpectedly costly mistake.
p.s.: There are plenty of businesses where testing prices often doesn’t make a lot of sense, for a number of possible reasons. At basecamp, for example, simple and consistent pricing is part of what makes them who they are. I wouldn’t favor pricing experimentation for them. For amazon, definitely yes. For a new startup still looking to hit its product/market fit: don’t worry about testing tiny changes–iterate on your whole product.