Prices Drives Many, But Not Most, Purchase Decisions

We surveyed 10,000 U.S. consumers about the purchases of 14 items they had made during the previous 90 days, asking them to identify the most important criteria in their purchase decision. As you can see in the graphic below…

  • Price is important, but… In eight of the purchases, price was the most selected criteria. But it was only selected by a majority of consumers for two areas: airline tickets and auto insurance policies. The importance of prices ranges from 65% for airline tickets down to 22% for credit cards.
  • Product and service features is next. For six of the purchases, the features were most important, ranging from 42% for mobile phones down to 5% for airline tickets.
  • Company reputation is for a few. Consumers that selected reputation of company as the most important criteria ranged from 22% for investment firms down to 5% for airline tickets.
  • Customer service rounds out the top. The percentage of consumers who selected their product primarily because of customer service ranges from 12% for bank accounts to 3% for mobile phones.

1306_WhyTheyBoughtMy take: Let’s face it, price is important. Companies can’t dominate most markets unless they have a compelling price point. But there remains a large portion of all markets where consumers are not as obsessed about prices. Consumers actually make most of their decisions based on factors other than price.

Think about competing on a price-plus strategy. Identify the competitive positioning of your prices, from lowest in the industry to highest in the industry. If you’re focused on the lowest price, then you need to do everything in your power to control your costs and maintain the low prices. At the other end of the spectrum, you need to do everything you can to add value to customers to justify your premium. Every position in between requires companies to keep an eye on their price levels PLUS provide value in the form of features and customer experience that justify their price point.

Even the consumers who say they care about price can be influenced by other factors if they are presented in a more compelling way. In the two most price sensitive purchases, auto insurance and airline tickets, the sales efforts in those areas often focus heavily on price. So the industries actually train customers to overfly focus on price.

We’ll dig a bit more into some purchase behaviors later in the year.

The bottom line: Most companies should not compete aggressively on pricing

About Bruce Temkin, CCXP
I'm an experience (XM) management catalyst; helping organizations improve results by engaging the hearts and minds of their employees, customers, and partners. I enjoy researching and speaking about these topics. I lead the Qualtrics XM Institute, which is the world's best job. We're igniting a global community of XM Professionals who are inspired and empowered to radically improve the human experience. To achieve this goal, my team focuses on thought leadership, training, and community building. My work is driven by a set of fundamental beliefs: 1) Everything starts and ends with human beings, so you need to understand how people think, feel, and behave; 2) XM is a discipline that needs to be woven throughout an organization's entire operating fabric; and 3) Building the XM discipline requires a combination of culture, competency, and technology.

4 Responses to Prices Drives Many, But Not Most, Purchase Decisions

  1. Bruce – extraordinarily surprising results. Amazing that price was such a small component for decision making for the vast majority of the products. The experience of many vendors across the variety of product / service areas listed in your survey seems to be somewhat contradictory with the survey findings. That is, we can probably located 100s of stories about consumers outraged about price-points and price increases in sectors including Internet / TV Service (increasing number of people dropping service, the rise of new entrants like Aereo), New Cars (dealers forced to offer ever increasing discounts to move inventory), Life & P&C Insurance (with thousands of competitors all competing for the same business primarily based on price & other incentives), Health Plans (all about price… reference ObamaCare), and Bank / Investments (where the discussion is typically solely focused on price, rates, returns, etc.).

    Do you think it is possible that price was not considered a major factor for the survey participants because they may have already narrowed their choices for the type of product & service they were going to purchase, resulting in a very narrow price distribution between the various options / vendors vying for the business?

    • Bruce Temkin says:

      Hi Serge: Thanks for sharing you thoughts. I think your observations are spot on. There is probably some amount of weeding out of options prior to a final decision that may be based on price. Also, I think customers behave differently than they think they will. What I liked about this research is that we asked consumers about specific recent purchases. So it provides a reasonably good indicator of their decision making process. I wish I had historical data to compare against, because I think the trending will provide additional insights. That gives us something to look forward to in 2014 🙂

      We also have a lot of other data about the purchases, including what information they used to make the decisions and how they felt about the entire purchase experience. I’ll be analyzing some of that over the Summer. So keep an eye on my blog.

    • Dont forget that there is always a gap between what people say and actually do. I.e. no matter how outraged, if a certain product or service does hit the sweetspot, people will still buy it. To me the results where not surprising at all – after all, in pretty much all industries except the most commoditized ones there are many more competitors out there than just “the cheapest”. These non-cheapest could not survive if every consumer only bought based on price 🙂

  2. Mike Tamayo says:

    Hi Bruce,

    The relatively lower weightings for “customer service provided by the company” is worthy of a little more investigation. Specifically, I’m wondering if survey respondents subliminally factored customer service in with the “convenience” and “reputation of company” factors as part of their purchase consideration. It’s reasonable, in other words, for a consumer to think, “…I favor Brand X because their stores are in all the malls, and they make it easy to return things and get a refund…” On the face of it, this speaks directly to “convenience”, but there’s certainly an element of customer service in their reasoning.

    Consequently, the results may be understating the influence of customer service on the purchase decision. From a CX perspective, this may undermine the cause because to the uninitiated, customer service equals customer experience…as we know, the experience includes all of the metrics in your survey.

    Thanks, and looking forward to future results.

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