Too Poor to Buy Cheap

I heard my grandmother grumble she was “too poor to buy cheap” for years before I understood she wasn’t contradicting herself. Experience taught her when price is the primary consideration in a purchase decision, the cost of ownership will probably be much higher. Grandma knew replacing shoddy merchandise or getting poor service would always cost more in the long run; she understood the concept of value.

You know the debate: Price is king versus value is king. Some of you may recall I’ve weighed in on the subject. It’s time to revisit the topic. It isn’t as straightforward as you may think.

The issue of price, or at least the perception of price, is integral to the buying-decision process and the characteristics of the personalities for whom you tailor your Web site’s buying and selling processes. Let’s explore the two classic shopping profiles: the transactional shopper and the relational shopper. This is where the discussion of price begins.

In a recent Monday Morning Memo, Roy H. Williams laid out the differences between the two modes of shopping (I borrow heavily because he said it so well).

The transactional shopper:

• Is focused only on today’s transaction with little thought of the possibility of future purchases.
• Fears only paying more than necessary. Price is the primary value determinant.
• Enjoys comparing and negotiating and will shop at several stores before making a decision to purchase.
• Does her own research so she won’t need to consult an expert. Consumer Reports is published for the transactional shopper.
• Doesn’t consider time spent shopping part of the purchase price.
• Is eager to share the “good deal” she found. She’s an excellent source of word-of-mouth advertising.

The relational shopper:

• Considers today’s transaction one in a long series of many future exchanges. Business has priority over product.
• Fears only making a poor choice. Confidence is the primary purchase motivator.
• Doesn’t enjoy the shopping and negotiating process.
• Seeks an expert he can trust.
• Considers time to be part of the purchase price.
• Feels confident he’s found “the right place to buy.” He will very likely become a repeat customer.

You may tend toward one shopping mode, but nobody is all transactional or all relational. You probably recognize bits of yourself in both descriptions. As with all other shoppers, your shopping mode is likely a function of the product or service category. In the grocery store, milk and eggs tend to be transactional products, while soda and toilet paper tend to be relational products.

Because transactional shoppers go all over to get the best deal and love to negotiate (or use discounts), merchants come in contact with the transactional mode more often than the relational mode. So, they conclude price is important to potential customers.

Consider this example. Six shoppers are looking to buy a TV. Three of them are transactional shoppers; three are relational. The transactionals each visit five different electronics stores, ask lots of questions, and haggle a bit on price. Then, each buys a TV at one store. Fifteen store visits, twelve frustrated salespeople, three purchases. Two of the three relationals each visits his favorite electronics store, one he trusts or had a good experience with before. Each talks with the salesperson, purchases a TV, and goes home. The third relational asks a transactional for a recommendation, because he knows she’s done all the research. Three store visits total, no frustrated sales clerks, and three purchases.

The math: Each group of shoppers accounts for 50 percent of the sales volume, but the three transactional shoppers account for 83 percent of the store visits. The three relational shoppers account for only 17 percent of visits. Caveat: Don’t forget many relationals rely on transactionals for recommendations.

See how you could think price is the key selling point in a buying decision? Imagine how this is magnified on the Web, where visits require little effort on the part of transactional customers.

What constitutes value? It’s in that gray area between price versus confidence and transaction versus relationship.

How you shape your Web site must be based on understanding both shopping modes. For some visitors, no matter how high the value added by your organization is, it will be regarded as overpriced. For others, no matter how cheap your product, the price of doing business with you will be too high.

Peter Drucker says, “The purpose of a business is to create and keep a customer.” Relational customers have higher lifetime value than their transactional counterparts. You won’t attract many with promotions, discounts, and advertising focused only on the last part of the buying process. If you want more relational customers, you need more patience, better planning, and more empathy.

Consciously or unconsciously, successful companies focus primarily on either the transactional or the relational shopper. Who does your company target? Share your focus with me.

Don’t miss ClickZ’s Weblog Business Strategies in Boston, June 9-10.