Pricing

Is Driving Price and Customer Loyalty An Oxymoron? Part 1: The Business Case

By Joanne Smith
July 29, 2014

I often hear salespeople blame their under-performing customer loyalty and weak volume growth on price. They mistakenly believe they can only drive an improved customer experience and volume growth OR they can drive a more profitable price, but driving the two together is an oxymoron. They wrongly believe they can’t co-exist.

For years, I led DuPont’s Corporate Pricing Excellence, and while doing so, I started up DuPont’s Customer Loyalty Initiative. I soon realized customer experience and more profitable prices could be driven simultaneously – that they were, in fact, two sides of the same coin.

A customer loyalty initiative typically involves measuring your customer satisfaction, then using this data to uncover areas where you can improve your value. The underlying premise is that consistently delivering value in the form of a better customer experience will improve customer loyalty. As customer loyalty improves, so does your ability to retain and grow with customers.

The Challenge

Many firms invest in improving the customer experience, but under-invest in the ability to capture the value of that improved customer experience through price. The oxymoron here: the smart fool. If you are going to deliver extra value, get paid for it.

There are a number of highly credible industry studies that prove the positive correlation between customer loyalty, growth, and price premiums. The Ultimate Question by renowned author Fred Reichheld demonstrates:

Companies are twice as likely to get a price premium with loyal customers as average customers, while their retention rate increases 14% and their share of wallet, 31%.

Furthermore, the Corporate Executive Board studies demonstrated:

Customer loyalty is driven 19% by the product and 53% by the buying experience; the rest is in company brand/image and only a small percent (<10%) from price.

That’s good news. It means you can create differential value in your offering beyond the product differentiation and get rewarded for it by capturing higher price and share.

At DuPont, I witnessed these same dynamics. Typically, 60% of our loyalty came from customer satisfaction with the buying experience,while pricing, as a reason for dissatisfied customers, was consistently below 20% across businesses. In other words, price was rarely the reason that customers switched away from us.

In fact, some of our businesses with the highest customer loyalty scores had more commodity-like products. Yet, they were able to generate customer loyalty scores that put them in the top tier of B2B companies, while achieving strong price premiums. Not surprisingly, these businesses had an intense focus on creating a positive customer experience and getting paid for it.

Check back in the coming weeks for Part 2 in this series, with step-by-step methods to drive both pricing excellence and customer loyalty.

  • B2B Pricing , customer loyalty , price , price premium , pricing , Pricing Journey

    Joanne Smith

    Joanne Smith is the president of Price to Profits Consulting and author of The Pricing and Profit Playbook. Joanne is a former DuPont Corporate Head of Marketing, Pricing and Customer loyalty. She was instrumental in creating the pricing organization which transformed DuPont from weak to outstanding pricing performance. In her six years leading price, the company achieved close to ~$1 billion of pricing uplift for most of those years. Joanne brings over 20 years of global business, marketing, pricing and consulting leadership experience.