Always look for customer behaviors that you can leverage to increase Customer Lifetime Value
I’m writing this at 30,000 feet on a plane headed to San Diego. I’m crammed into a tiny seat with a completely inadequate amount of space to use my laptop.
I’m afraid the guy in front of me is going to sneeze sending his seat back crashing down on my screen. I keep getting hit by people walking up and down the aisle and…
And, well, I brought all of this on myself.
You see, when I bought my ticket I was presented with two options that met my needs to get from point A to point B on the day and at the time I wanted. Both options completely met my baseline needs.
These two options were “Coach” and “First Class.”
When I was planning this trip a few weeks ago, late at night sitting on my very spacious living room sofa I made a decision.
“I’ll be fine in Coach” I thought to myself.
I knew, for instance, that I didn’t have a pressing need to finish a presentation or to do last-minute work for a client so I didn’t “need” the extra room.
I like showing off as much as anyone, but I can go a day without frontin’ like that in First Class. Networking? I’ll be okay without that.
I also knew I’d be okay without the included meal or booze.
And while I’d miss being treated like a real person rather than as a member of the unwashed masses, I figured I could do without it this time.
So I whipped out the credit card and bought the Coach ticket.
This morning as I was getting ready to leave I was hoping more than anything that when I went to the kiosk at the airport to print my boarding pass I’d be presented with an OPPORTUNITY to buy my way into First Class.
I clicked past the other up-sells – double miles and something else I can’t remember; I was on a mission – hoping the next screen would give me the ABILITY to give them some money.
I realized I didn’t want to have to be cramped back here getting a little too familiar with the gentleman in the middle seat.
I was absolutely EXCITED about the possibility that I might be able to purchase an upgrade.
Alas, I was not given the opportunity to give them any more of my money and here I am. (sad face)
Now, what the airline does when they offer the OPPORTUNITY to upgrade after you’ve already purchased a low-end ticket is two-fold.
First, during the original purchase process they present you with a retail (reference) price for their First Class ticket; in my case I think it was 3x the coach ticket price.
Right then, I can either pay full price for the First Class ticket or pay the lower price for Coach. Those are my only options.
Then, second, if you didn’t buy the First Class ticket, they offer you the ability to upgrade at a discount (off of the 3x Coach “First Class” Reference price; often a significant discount) when you really need it.
In the case of the airline, the time to offer this upgrade is not online when you’re buying your ticket, but at the airport when you’re stressed out, feeling disrespected, and otherwise diminished by the process.
They are giving you an OPPORTUNITY to take advantage of the awesome value proposition First Class is RIGHT THEN – not when you’re sprawled out on your room-sized couch planning your trip.
Interesting how the value perception of First Class changes and they know it. Even more, you know it, and you are happy to plop down an extra $150 to sit 20 feet closer to the nose of the plane.
I have to say it again… you’re HAPPY to buy the upgrade; even feeling lucky you got in; like you were chosen special.
Even more… you’re disappointed when the upgrade is NOT available… maybe you even write a super-long blog post about the experience.
Here’s the thing… we know the plane is going to fly whether you are in row 12 or row 2; but they want another $200 from you (they know all about Customer Lifetime Value and Average Revenue Per Customer) and you’d be happy to give it if given a chance.
Obviously not everyone presented with the offer will take it – nor could they (due to actual scarcity) – but all it cost them was adding the screen to their kiosk, understanding passenger psychology, maybe looking at past buying behavior data, and of course… asking you if you’d like to upgrade. (You know… actually ASK for the sale!)
So does this massive discount damage value perception of First Class? Not in the least… in fact, for the person that gets the upgrade they may be experiencing First Class for the first time and become addicted to it, never to return to Coach and driving their CLV sky-high (pun intended) in the process.
How likely is it they are either going to buy First Class by default next time or take the upgrade offer (CLV always in mind)?
The other reason this doesn’t damage value perception is that it is done behind the scenes.
The other folks in First Class don’t know who paid what… not everyone got the offer, some paid full price (and no one up there wants to admit they got a one-off cheap deal, right?)
So the upgrade price wasn’t published publicly, only offered to the traveler at a very specific time, and only offered sometimes.
So, how many people are EXCITED to upgrade to the “First Class” version of your App, Product, or Service or to get your “Premium add-on” AND disappointed when they can’t?
How well do you know your customers and their buying behavior?
Do you know how the value perception of your offering and the versions therein change for different use cases or even customer segments?
If I were you I’d take a few minutes and think about those things; this might be a great reason to gather your team and have a brainstorming session.
If you’re curious how we could improve your Customer Acquisition process – including your Up-Sell and Cross-sell process – contact me and we’ll setup a time to discuss your options for improving and accelerating customer acquisition.