Finding the price / customer service sweet spot

Before meal solutions box scheme HelloFresh unexpectedly knocked on my door earlier this year I had no intention of subscribing to any such product. But the impressive pitch delivered by the young, on-brand, funky couple of people selling the product door-to-door led to me signing up with little resistance.

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Their slick, knowledgeable delivery hooked me in and I accepted giving the trial period a go – which gave me an initial discount on the weekly boxes. When I received the first delivery the experience fitted well with what I’d be sold – it was a great product and had the equivalent high quality branded packaging around it. It all fitted together very sweetly.

But there was a fly in the ointment – the pricing. When I’d gone beyond the trial period – enjoying a juicy third off the regular price – the level of customer service and top-end experience did not for me fully stack up with the high price point. Part of the problem was that to enjoy the product at its freshest best requires two people to be at home three consecutive nights otherwise the high quality ingredients wilt and the end (cooked) product is therefore diminished.

In my circumstances the critical price/customer-service equation did not make sense financially and so I ended my brief HelloFresh relationship. But this got me thinking about pricing and service and I soon found out that studies have been undertaken to calculate the satisfaction levels that customers experience when they consider both pricing and customer service levels.

Just how price elastic are people as they go up the customer service scales before the band snaps and they don’t believe the exemplary service they are receiving justifies the high price point they are being charged for the privilege.

The Institute of Customer Service produces an annual ‘UK Customer Satisfaction Index’ (UKCSI) and in the recent version the really interesting finding is that there is a sweet spot where a certain level of service at a particular price point can attract a significantly higher level of customers to a retailer.

A modest 6% of the customers surveyed in the UKCSI stated they were satisfied with a four out of 10 score for both service and price but when the score notched up a tad to five out of 10 for these two characteristics then the level of satisfied customers jumped big-time to 17%.

This high level of satisfaction among customers stays consistent until we go beyond a score of eight out of 10 for the price and service levels. At which point the number of people willing to spend higher amounts of money for the ultra top-end service falls off dramatically to around 6%, according to the survey.

It is very clear therefore that a key objective for retailers must be to try and hit this sweet spot because the upside to this is attracting significantly more – satisfied – customers. For the food box schemes in particular the competition in their marketplace is extremely intense and so to be able to win the battle for customers they will have to deliver a decent level of service that is matched by a realistic, rather than overdone, pricing strategy.

Personally, I’m therefore waiting for another knock on my door and to then see whether the next box scheme on the block manages to balance the two components of the equation that manages to tie me in for longer than the discounted trial period.

Guy (online only)Guy Chiswick, Managing Director, Webloyalty Northern Europe (@Webloyalty_Guy)

About Guy Chiswick

Guy Chiswick is the Managing Director of Northern Europe for Webloyalty. He is interested in retail innovation and discussing the future of retail. You can follow him on Twitter @Webloyalty_Guy