Our optimization expert Guy Stratermans has for Marketingfacts wrote an article on the influence of price and discount in the buying process.

In the book "The Tipping Point," Malcolm Gladwell describes how ideas, products and trends spread seemingly overnight after slow beginnings. This is the so-called "Tipping Point" or "tipping point. The price of a product or service also has a Tipping Point; a certain amount at which suddenly significantly more people decide to buy it.

What pricing strategy are consumers receptive to online?

As a marketer, you want to know what pricing strategy and discount you should use if potential customers are to convert. Learnings are shared from a real-life example in the Belgian energy market.

Price: the (in)visible Tipping Point

Malcolm Gladwell describes several types of "Tipping Points" in his book, from epidemics to fashions. 'Hush Puppy' shoes become a fad after trendsetters start wearing them and trend followers adopt them en masse. Even products that you do not consume so easily visibly, such as household appliances, a loan from a financial institution or a car, have a Tipping Point. For consumers, price remains an important factor in the purchase process in this regard. By making the factor price measurable and analyzing it, we are able to make a Tipping Point visible.

For marketers, it is valuable to know where the Tipping Point of a product or service lies. Of course, there are all kinds of differences between products and services that are difficult to express in value or a monetary amount. Brand perception, the appearance of a product or the stress and time it takes to arrange switching. Somewhere in this enumeration of "soft features," which vary from product to product, lies a price that can win a consumer over.

Take the housing market as an example; it's pretty locked up. And of course location and condition are important factors. But if the house price were to drop by 90%, after a week there wouldn't be a house left for sale. So there is always a Tipping Point: a point at which a product or service at a certain price becomes especially attractive.

If you know where the "Tipping Point" is, you can act on it to achieve maximum return. In fact, you hardly need to convince people anymore.

Another example:
Mitsubishi was near death on the Dutch car market. But now that a 7-seater hybrid SUV with 14 percent additional tax rate is in the range as of mid-2013, there is suddenly a laundry list of orders. So not having to pay road tax (privately) and/or 14% instead of 25% additional tax rate suddenly helps Mitsubishi past the "Tipping Point.

Case study: Essent.be

Essent.be is a challenger in the Belgian energy market. With competitive prices, the energy supplier is seen as a price player. To show visitors to Essent.be the savings advantage over their current energy supplier, there is a price comparer on the site. The price comparator is part of the main menu and every visitor can compare his or her energy supplier with Essent. By linking conversions to the number of price comparisons and the amount of savings shown, we were able to identify a Tipping Point. The Tipping Point is the point at which the difference in conversion rate between specific discounts is the greatest. The specific amount that attracts visitors and makes them switch to Essent.be.

Understanding the Tipping Point

The Tipping Point can be extracted from the price comparator data and the web statistics, visualized in a graph below for convenience. For competitive reasons we do not mention an amount but anyone looking at this graph can see that there is a certain range in which more consumers than average are switching to Essent.be.

In the shaded pink area, the conversion rate is higher than the cumulative conversion rate. The gray line marks the price level at which the difference between cumulative and exponential conversion is greatest. Interestingly, the conversion rate does not increase exponentially. Both below and above a specific discount amount, the conversion rate neither decreases nor increases. In other words, above a certain amount, the amount of the discount no longer matters. Based on this knowledge, a company can adjust the pricing/discount policy to avoid giving away unnecessary discounts.

More information on the technical aspect of understanding the Tipping Point is described in an article on Webanalisten.nl: A/B testing 2.0: collecting web statistics with A/B testing

Key conclusions from the case study

Outstanding service may cost something

The analysis at Essent.be shows that the 'Tipping Point' differs among competing suppliers. Consumers of suppliers with 'less than excellent service' need less financial reasons (lower price or higher discount) to switch compared to a customer of a supplier with good service. When a competitor's service is poor, the Tipping Point is much lower. Visitors even switch despite having to pay more. Apparently, they find the service from the current supplier so bad that they want to switch at all costs.

Price is only one of the decision factors

The analysis shows that visitors from suppliers who are known as price competitors or who have a mediocre customer service rating are more likely to switch to Essent.be. This indicates that as a 'price player' you are sensitive to price developments and offers from competitors. Good customer service and online service should therefore be your top priority.

The Tipping Point brings us to the frontier of brand values

You might choose not to offer visitors coming from a competitor that has lower prices the functionality of a price comparison. In order not to discriminate, this visitor will also need to be able to go through the price comparator, albeit this page may be a little less easy to find. This form of behavioral targeting allows you to show prospect A page X and prospect B page Y. By first asking "what vendor is the customer with?" you can determine what you show that particular visitor next. The question is how far you want and dare to go.

Conclusion

The search for the "Tipping Point" offers your company a unique opportunity to get to know the customer even better. As an (online) marketer you collect data on the basis of which you can plot follow-up actions. This allows you to make informed decisions ranging from a new product offering, pricing policy or setting up business rules for behavioral targeting. Whether this kind of extreme segmentation is ethical and justified in terms of brand policy is something each company must decide for itself.

In the meantime, it can't hurt to focus on providing added value and service excellence. How 'good service' is valued financially can be obtained from a Tipping Point analysis. You can even calculate how much you can spend on improving (online) customer service. Hopefully marketers will start including the added value of good customer service as a factor in their branding and recruitment campaigns.

Originally posted on June 6, 2013 at Marketingfacts