Communicating value in service-oriented businesses, Part 3: Convincing your clients to pay higher prices

Ok, here we are, finally in the promised land of the last installment of this case study series. Here are the important points from Part 2:

  • Perception of value is usually very subjective
  • Ultimately, value communication exists to raise customers’ willingness to pay for the value they perceive.  It is important to determine the type of benefits buyers are seeking from a purchase.  Are they looking primarily for economic benefit, i.e. the lowest cost?  Or are they looking for psychological benefits such as comfort, status, appearance, pleasure, or personal fulfillment?
  • One of the most effective ways to communicate value to psychological benefit seekers is by reframing the way the customer views the product or service differentiation, not in terms of the product’s immediate attribute performance, but in terms of a possible end-benefit
  • If customers believe they are getting value for money, they will remain loyal despite price increases

LedZeppelin1973_GruenNow, I’m going to discuss a bit of persuasive theory, but don’t shut down just because it is theory-based. I find that soothing music is my spoon full of sugar for the theory tonic. Right now I’m listening to “That’s the Way” by Led Zeppelin…I highly recommend this soundtrack for your reading/listening pleasure. Besides, this theory is pretty common sense. Here we go…

Many times, customers can be quite difficult when dealing with increases in costs charged to them.  As Sherif, Sherif, and Hovland put it, social judgment theory addresses why people can be challenging in these communications and offers a common sense approach to persuasion.  This theory classifies attitudes along a continuum (Baldwin, Perry and Moffitt, 2004).  Social judgment theory consists of five key principles:

  1. People have categories of judgment by which they evaluate persuasive positions and each of these positions has three zones—the latitude of acceptance, the latitude of non-commitment, and the latitude of rejection.  Before a persuasive argument is even made, each person has their own anchor position, or the most acceptable position for that person.social judgment theory
  2. When we receive persuasive content, we determine which category a given position belongs in.  People do not passively take in information; rather, they make judgments.  Naturally, it is easier to influence a person with a larger latitude of acceptance than a larger latitude of rejection.
  3. A person’s level of ego-involvement, i.e. how important an issue is to a person’s self-identity, affects the sizes of their latitudes.
  4. Outside the latitude of accpetance
    Outside the latitude of accpetance

    People tend to distort incoming information to fit our categories of judgment depending on the anchor position.  If incoming persuasive information falls within the latitude of acceptance and is close to the anchor position, then people assimilate to the new position.  Conversely, if it falls outside the latitude of acceptance, then people will contrast that position and make it seem worse than it really is.

  5. Small to moderate discrepancies between anchor positions and the new advocated position will lead to change; large discrepancies will not.  Thus, change is likely to be small and difficult to obtain and will most likely occur slowly over a long period of time (retrieved from http://healthyinfluence.com/wordpress/steves-primer-of-practical-persuasion-3-0/feeling/social-judgment-theory/).  Social judgment theory suggests that “major change will not occur within a single message, but that a campaign of several messages, even over a long period of time, might be more helpful” (Baldwin, Perry, and Moffitt, 2004, p. 147).

If the persuasive argument is to raise prices on existing products and services to reflect the intangible value of said products and services, then a probable anchor would be a customer’s reference price.  Reference prices are any price set against which other observed prices are evaluated.  Reference prices can be internal, contained only in the memory of the consumer, or may be external, determined by market stimuli (such as suggested retail prices) (Chapter 8 PowerPoint, Nova Southeastern University).  As pointed out earlier, many consumers do not draw the connection between intangible services and value pricing, so their expectations of pricing based on reference prices may be much lower than what the cost of services actually is.

In their 2004 article, Xia, Monroe, and Cox discuss perceptions of price fairness.  They warn that perceptions of price unfairness can lead to repercussions for the seller, including losing clients, a spread of negative information, or other behaviors that might damage the seller’s reputation (Xia, Monroe, and Cox, 2004).  The photography industry relies heavily on word-of-mouth referrals, regardless of specialty niche for the photographer.  Avoiding perceptions of price unfairness, especially during the somewhat difficult task of raising prices for existing customers, must be avoided.  This concept of price fairness is a judgment based in comparisons and typically notions of unfairness are clearer, sharper, and more concrete than feelings of fairness because it can be harder to articulate what “feels” fair (Xia, Monroe, and Cox, 2004).

crossed fingers at handshakeA correlation between perceived price fairness and social judgment theory can be drawn. “For price comparison, when the degree of similarity between comparative transactions is relatively high, buyers have little differential information to explain a price discrepancy.  The assimilation effect leads consumers to expect or believe that they are entitled to equal prices, and they are likely to judge that the price discrepancy is unfair” (Xia, Monroe, and Cox, 2004, p.4).  Because the new price (the persuasive argument) is so close to the reference price (the anchor), the client is likely to think they are being treated unfairly and persuasion does not occur.  One can deduce from this that while it is suggested that prices be raised incrementally over time, price changes that are too small and too close to the existing price will not accurately demonstrate the value of the service and will be rejected.  The authors also found that price increases that resulted from managerial influence rather than external factors are perceived to be less fair.  Trust and id

entification between the seller and the buyer also play important roles in perceived fairness of price increases.  Behavioral reactions to perceived price unfairness include no action, self-protection, and revenge and each of these buyer behaviors should be avoided when attempting to communicate price increases (Xia, Monroe, and Cox, 2004). This can be accomplished by communicating within the principles of social judgment theory.

So what was the point of all of this?

costomer loyalty crosswordAs researchers have suggested, multiple price increase campaigns over a long course of time would work best to adjust clients’ attitudes toward new prices.  By communicating within their latitudes of acceptance or latitude of non-commitment, Derek Brad Photography will be more effective in increasing prices without sacrificing client relationships.  As trust and identification are gained between Derek (the seller) and his B2B and B2C customers (the buyers), it is hypothesized that customer loyalty will win over future incremental price increases.

The bottom line:

Because social judgment theory recommends multiple price increases over a long period of time, unfortunately I was unable to get conclusive results during the six-month period of this internship. It would be necessary to do a longitudinal study on Derek Brad Photography to test this hypothesis. However, Derek did proceed with PR tactics based in value communication and has seen increased profits while being able to concentrate more on projects that truly interest him (and pay more), rather than multiple concurrent time-consuming assignments for little to no pay. His reputation as a professional as well as his mission statement have been reinforced by charging prices commensurate with the value he feels his services are worth.

I feel that the culmination of research from this case study and an extended study of the use of social judgment theory in practice with Derek Brad Photography could possibly be used as a model for other small service-oriented businesses.

As always, be sure to subscribe to this blog or check back later for the next installment. We’ll be taking a much-deserved break from the academic stuff and getting back to communication trends, tips, and pitfalls to avoid. You can also follow me on Twitter @laurakate79 or like me on Facebook to join the conversation and get updates. And as if that wasn’t enough, you can also follow me on Google+ and LinkedIn.

One last thank you to Derek Brad of Derek Brad Photography for his cooperation during this case study. If you need a creative and reliable professional photographer, I recommend this guy 100%. Check out more of his work at www.derekbrad.com.

Passion Pit at the Electric Factory. Photo by Derek Brad.
Passion Pit at the Electric Factory. Photo by Derek Brad.
of Montreal
Of Montreal. Photo by Derek Brad.
William Control
William Control album cover. Photo by Derek Brad.
Gary Clark, Jr. Photo by Derek Brad.
Gary Clark, Jr. Photo by Derek Brad.

Sigur Ros at the Skyline Stage. Photo by Derek Brad.
Sigur Ros at the Skyline Stage. Photo by Derek Brad.
Lindsey Stirling. Photo by Derek Brad.
Lindsey Stirling. Photo by Derek Brad.

 

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