Will you give your best prices to your new customers so as to lure them or to your existing customers as a measure of customer retention?
Different businesses approach their customers differently. For example, cell phone companies prefer giving their best rates to their new customers while airlines do the exact opposite. Which way would you go in your business? To be able to answer that, there are a couple of concepts that you should grasp.
Concept Number One: Flexibility
Flexibility refers to the ease of shopping. Do your customers have more options of shopping for the products that you sell to them? Can they switch with ease? If yes, then they have more flexibility. If they can’t, they have low flexibility. A contract with your company is an example of low flexibility.
Concept Number Two: Contribution
No matter how large or small your customer base is you will have a definite percentage of customers that contributes to most of your profits. If the profit margin from these customers is significantly higher and if the others are not able to even come close to this number, these customers contribute more. If the percentage difference is not significant and customers have almost equal contribution in your profits, contribution is less.
Now, based on these two concepts you can make a call. Experts say that you should give your best prices to your existing customers in case the flexibility is high and the contribution is high as well. If the shopping flexibility and contribution are both low, you should go with the second alternative: giving your best prices to your new customers and focusing on customer acquisition more than customer retention.
No matter what path you choose it is important to think strategically. Giving your existing customers too much importance may even work against you because it becomes obvious that you are trying too hard to retain them. You are letting them know that they have other options (more flexibility) as well. You should avoid that by coming up with good loyalty programs so that your pricing strategy works in your favor and your customers, both new and existing, are happy with the rates you are offering to them.
As the leader it is your call when it comes to providing the best prices. Depending on your business and the competitive market you should decide whether the best prices go to your new customers or your existing customers. Analyze all parameters such as customer value and flexibility that customers have before making a choice.