Supply Chain Pricing Is About Customer Satisfaction

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There are prices people will gladly pay, the price that people will be willing to pay, and there is the price that folks must pay and/or will not pay. We see this every day in our lives from sales and prices we will gladly play on clothes and food to what we must pay for gas or postpone travel all together. However, the price we pay varies on the customer satisfaction scale from happy to refusal.

In the customer eyes, there is also the perception of a product’s quality that is tied to price. Too low a price we instinctively think of poor quality, and we tend to find faults in the product. Too high a price we typically think of a higher quality and willingness to pay for an established brand or service level. Both are intrinsically tied to customer satisfaction in these days of customer-centricity.

So, what is reasonable for a business to charge? It turns out that “Reasonable” priced products, in the middle of low and high tend to have the best value perception while enabling greater flexibility for price increases and decreases studies have shown.

Behind the scenes of pricing is the implications on inventory, replenishment planning, manufacturing, distribution, and other nuances into bringing the product to the actual customer. The hypothesis here is that if we can satisfy the customer satisfaction equation, the inventory demand and supply optimization problem will be resolved accordingly through market demand and balancing using advanced supply chain solutions.

The first question that comes to mind is how customer satisfaction is measured and then how does price play the significant role. The price of a good or service is very influential on customer satisfaction. Customers use price as a consideration in determining the purchase of a product, when should the purchase be made, and how great is the need for the product in accordance with customer purchasing power. Normally, whatever that means these days, demand and prices have a negative or reversed relationship. That is, the higher the price is set the smaller the demand.

However, studies have shown other considerations come into play for customer satisfaction and pricing. There appears to be three main drivers of customer satisfaction: product quality, price, and customer value. Each with its own deterministic value. The attributes impact customer satisfaction and highlight “pricing satisfaction” is based on type of product we pay for. Overall, the products we pay for can be divided into four categories and behavioral pattern:

  • Household goods – we pay for frequently, easily find, and we do limit pricing analysis.
  • Negotiable goods – we tend to compare pricing, quality, and buyer experience, has higher price.
  • Specialties – we do pricing homework, products harder to find and willing to pay a higher price.
  • Goods without interest on – new items requiring marketing efforts and attractive pricing

Pricing is a powerful way to improve customer satisfaction which leads to improved customer retention. While discounts still have a high value for most customers they do not in themselves create loyalty.  Long-term retention can only be established on an emotional level.

To improve overall customer satisfaction, you need to be pricing your products high enough to give you the resources to offer amazing customer experiences. By increasing your prices, you can allocate more resources to deliver a better customer service. This approach has shown that by maintaining high degrees of customer satisfaction, pricing becomes less of a factor for customer retention and loyalty to the tune that a 1% increase in customer satisfaction should be associated with a 0.60% decrease in price sensitivity. Bottom line is that the initiative to drive better customer satisfaction enables higher pricing flexibility for greater profitability levels.

Providing high degrees of customer satisfaction at the proper price points must be aligned with the delivery of those products and services with the optimum usage of inventory and resources. Integrating pricing strategies into the Sales and Operational Planning Process (S&OP) and Integrated Business Planning (IBP) activities is a greater need than ever in a world becoming ever more competitive and usage-based.

Take a customer-centric view of customer satisfaction and pricing with an eye of supply chain inside and outside the organization as Blue Ridge Global with their inventory and pricing optimization solution does is a breath of fresh air. Especially when we are inundated with supply chain solutions that focus on inventory and throughput and miss the major purpose of it…. The Customer.