Don’t answer right away… Living here in Spain has made me reflect on the topic of paying more for quality and service. Is it worth it? And how much?
There’s a certain very-well-known department store where it’s generally a fact that you may pay a bit more for your purchases, but you can almost always expect friendly, knowledgeable service and no hassles when you run into any problem. After having one too many hassle experiences of running into a problem only to find that you as the customer are wrong (example: See Zara Kids post) or that you can’t make a return for some reason, sometimes it’s worth the price to pay a little bit more.
If you’ve ever lived or traveled to Spain, you’ve probably heard of the Corte Ingles, the massive department store sprawled out around the country. The Corte Ingles has everything – from clothing to a supermarket to a travel department. If you go to the supermarket chances are you’ll notice that prices are slightly higher than your local small supermarket like Mercadona, Día or Ahorramás (some typical stores in Madrid). The supermarket is always packed and with lines at the checkout. So, why would people be willing to pay more to buy the same thing they could get for less at another location?
Let’s think about travel insurance. When you go on vacation or buy a plane ticket there’s always an option to pay for additional insurance in the case that something goes wrong. Do you buy it? What about car rental insurance? The last time I was in the US and rented a car I decided that $25 a day for complete coverage was a lot of money. However, when I learned there was an option to pay less than half of that ($11 a day) for partial coverage, meaning I wouldn’t have to worry about any scratches, small crashes, etc., I signed up. Of course, both of these examples refer to additional services that must be purchased to avoid hassles. Here, we are talking about knowingly paying more (perhaps only 50 cents or perhaps a few euros) to have ease of mind.
Yes, we are still battling an economic crisis here in Spain. But that doesn’t mean that customers aren’t willing to spend. If you take a walk on any day when the sun is out you can generally find packed terraces with people enjoying a bit of sun and a beverage. And you can usually expect lines or reservations necessary at a lot of restaurants during the weekend. And during “rebajas”, the huge rebate and offer shopping period right after the holiday season, the stores are crazy. Crisis? What crisis? Consumer spending is on the rise (http://www.bloomberg.com/news/2014-05-29/spain-growth-accelerates-as-household-government-spending-rise.html)
Similarly, with consumer goods products it is true that the Private Label is growing at an enormous pace (http://www.nielsen.com/us/en/insights/news/2014/how-private-label-and-retailers-are-disrupting-the-trading-envirornment-in-western-europe.html) but it’s not just price that’s factoring into this growth; quality is a key factor as well. Private label is innovating and providing quality to customers; customers are willing to pay for quality and innovation, with Private Label or with branded products (within set premiums).
81% of European consumers are willing to pay more for superior customer experience. (http://www.oracle.com/us/corporate/press/1883120) And 44% are willing to pay a premium of more than 5%. What does this mean? Making customer service and customer experience a focus of any business (yes, it’s just as important as other departments!) pays off to increase sales and retention. Still not convinced? Do a simple survey of customers and the facts will speak.
http://www.inc.com/geoffrey-james/the-10-reasons-customers-pay-more.html (See No. 6 and 8)
So how much premium are you willing to pay? 5% 2% 10? In my case I would say my premium here in Spain is definitely higher than that in the US. Why? Because I know that the concept of the importance of customer experience is still a novel idea here in Spain, but I prefer good treatment. Back in the US generally the customer is always right and the need for higher premiums isn’t as important.
As I said in my section on Customer Experience, I believe that this is the next competitive battleground here in Spain. Sooner or later…