By Nick Lee, Professor of Marketing, Warwick Business School and Tim Riesterer, Chief Strategy and Research Officer, Corporate Visions
Challenging or provoking your customer has become all the rage due to popular books and magazine articles. In fact, our own decision science-based research demonstrates that when you are trying to displace an incumbent or defeat a competitor, you need to use an approach that deliberately disrupts your prospect’s status quo bias.
But new customer acquisition isn’t the only selling situation strategic account managers face — far from it. Most times, you are the incumbent, which begs the question: Should you continue to challenge and disrupt the status quo when you are the status quo?
That question drove our recent research aimed at determining the best messaging approach to communicate a price increase while also securing the all-important contract renewal with an existing customer.
Interestingly, we discovered that the challenging, provocative approach — which fared so well in the “why change” selling situation — didn’t hold up when it came to securing renewals and communicating a price increase.
In fact, the challenging approach appears to backfire in existing customer-selling simulations – making existing customers more likely to switch and less likely to renew – compared to a messaging approach that reinforces the causes of status quo bias.
We’ll take a detailed look at this research and provide a practical messaging framework to use in renewal and price increase conversations that has been shown to significantly outperform the challenging approach.
“I want you to renew, and I need you to pay more.”
No matter how you spin it, this message is one of the most delicate that SAMs will ever have to communicate to customers. But, for companies with aggressive growth goals who need to get more value from their top accounts, it’s also one of the most essential.
We conducted a survey to understand how customers are handling these conversations today. The survey found that nearly two-thirds of B2B professionals believe price increases are “very important” or “mission critical” for maintaining desired profitability and revenue growth. And yet, almost 70 percent of companies in our survey say their success rate is “50-50” or worse in terms of how their price increase messaging is received by customers.
With this in mind, we set out to get answers to the following question: What is the most effective message for communicating a price increase?
The experiment we developed was structured to assess three areas critical to the effectiveness and reception of a renewal price increase message:
- Positive or negative attitudes
- How likely a customer is to renew
- How likely they are to switch to a competitor
To begin, we recruited participants to take part in an online experiment where participants were instructed to imagine that they ran a small business and that two years ago they had taken steps to improve employee satisfaction and retention rates to stem high turnover. Participants were further instructed to imagine that they, as business owners, had signed a two-year contract with a vendor to help promote the company’s health and wellness program for employees — with the hope that increasing employee participation would increase employee satisfaction and reduce turnover.
The two-year contract was nearing its conclusion, and it was time to renew with that vendor or choose an alternative. Participants were told they’d recently met with some of the other providers. These providers had all made improvements and introduced new capabilities, and while some of the improvements were appealing, nothing really stood out. In addition, pricing appeared to be similar to what they were already paying. However, the current vendor partner is now asking for a price increase for the next two-year agreement.
But here’s what participants didn’t know: They were divided randomly into six groups and placed into different message conditions, each of which took a different approach to framing the price increase. Importantly, in each condition, the message opened by documenting the business results to date, and all of them proposed the same four percent rate of increase to the annual cost of the program.
The six approaches are described in the table.
The experiment revealed that the challenging, provocation-based message that introduced an unconsidered need was the least effective in terms of communicating a renewal price increase by a statistically significant margin.
Participants in the challenging condition were found to have:
- 18.8 percent less favorable attitudes toward the message, compared to participants in the new capabilities with timed discount condition, which performed the best in this regard.
In addition, participants in the challenging-based message were:
- 15.5 percent less likely to renew with their current vendor, compared to participants in the new capabilities with time discount condition, the highest performing message in this area.
- 16.3 percent more likely to switch to another vendor, relative to participants in the status quo bias reinforcement condition, which performed the best in this measure.
The results reveal that the winning messaging framework embodies two things:
- It will reinforce the status quo biases while introducing key, new capabilities to solve existing needs – not introduce new needs.
- It will also anchor high with the new price, before giving a timed, loyalty discount to sign the renewal.
There’s an appropriate time to challenge your buyers—it’s just not when you’re trying to renew them and convince them to pay more. The results of the study are clear and compelling, and it’s rare to see such strong and consistent results across such a large sample audience and so many different conditions and categories of measurement.
Above all, the findings serve as confirmation that communicating with prospects and customers across the buying lifecycle isn’t a one-size-fits-all thing. While a disruptive message plays well when you’re trying to defeat the status quo bias and displace an incumbent, it shouldn’t be applied universally—no matter how popular the approach might be.