Today’s post is by Tim Riesterer, chief strategy and research officer of Corporate Visions.
Salespeople in recent times have been under a mandate to always be challenging the customer. And that’s a fine piece of advice when you’re trying to acquire new business – a disruptive perspective is essential to overcoming buyer inertia. But it’s very bad advice when you’re trying to keep your customers and get them to pay more.
New research shows that challenging your customer during a renewal or price increase discussion is exactly the wrong approach – one that could make good customers susceptible to your competitors.
Recently, my company conducted research that revealed the downside of applying a provocative message to renewal conversations – or the “why stay” discussion. (You can learn about that study here.) Since then, we have turned our attention to a related conversation salespeople need to handle well: price increases (or what I call the “why pay” conversation).
Improving solutions and providing top-notch account service all wind up in the same spot: a post-purchase price increase conversation. The question is, how do you tell this story in a way that drives more revenue without endangering existing customer relationships?
My company, Corporate Visions, collaborated with Dr. Nick Lee, a professor at the Warwick Business School in the U.K., on academic research to answer that very question – and determine the best messaging framework for what I call the “why pay” conversation.
The “Why Pay” Study
For the study, which you can view in full here, we recruited 503 participants to take part in an online experiment that simulated a renewal and price increase selling scenario. Participants were told they ran a small business and that a two-year contract with a vendor they’d hired to promote their health and wellness plan (and retain employees) was coming to an end, and it was now time to broach a renewal and a price increase.
We tested six different approaches (you can view them in depth here). All the test conditions started by documenting business results to date and all requested the same 4 percent price increase for the next two-year agreement. Participants were divided into six different groups and placed into different experimental conditions. The range of conditions included:
- A message that introduced a new insight designed to challenge a customer’s current perspective and situation.
- An offer to extend certain types of price anchors and discounts (all ultimately offered the same 4 percent increase).
- Reinforcement of the status quo bias – (an approach our past research had revealed to be effective in a renewal context).
The experiment revealed that the “challenging” provocation-based message was the least effective in terms of communicating a successful price increase – by a significant margin across a bunch of key areas.
Participants in the provocative condition were found to have 18.8 percent less favorable attitudes toward the message. In addition, participants in the provocation-based message were
- 15.5 percent less likely to renew with their current vendor
- 16.3 percent more likely to switch to another vendor
But the study didn’t just reveal what doesn’t work for the “why pay” story; it also illustrated what does. Specifically, the winning message, according to the study, is one that
- Reinforces the status quo bias while introducing key new capabilities to solve existing needs – not introduce new needs, and;
- Anchors high with the price increase request, before giving a loyalty discount if the buyer purchases within a prescribed timeframe
The best performing messages in the study suggest your message should open by documenting results to date before reinforcing status quo bias, introducing new capabilities, and anchoring a high price increase before providing a loyalty discount.
You can view the full research in our new report on communicating price increases.
The big revelation from this research is that the disruptive message so in vogue today may be highly effective when you’re trying to win new customers. But, when you’re trying to convince customers to stay or pay more, that message will backfire in a big way – potentially causing your customers to rethink the value of their relationship with you.