The way we shop for products and services has changed drastically over the past few years. Whereas in the past, customers had a limited range when searching for deals, online shopping makes price comparisons incredibly easy. This has led to many companies approaching pricing as a race to the bottom. The assumption is that whoever can afford the lowest margins wins.
In some industries, this really is the case. If you are looking to buy a particular product from an online marketplace, you’re probably going to go with the cheapest option. After all, you’re getting the same product and only the price differs. Unfortunately for smaller retailers, this can make it impossible to compete with big corporations that can afford tiny margins.
However, when it comes to bespoke and premium products and services, customers are still discerning. In fact, many customers will happily choose the more expensive option in hopes of getting better service.
This usually comes down to two factors: strategic pricing and customer service.
Strategic Pricing vs. Standard Pricing
We’ve all been in a situation where a low price made us question the quality of a product. Even when we’re not thinking about it, this is something we do intrinsically. Consider a three-piece suit that you can buy for $100. You likely already have assumed that it is made from cheap materials. If the price on the suit is $1,000, however, you’ll probably assume the opposite. This is even before you have seen either of the suits.
With strategic pricing, you use human psychology to help choose pricing. In addition to taking into account the margins that will bring you a profit, you consider which prices will attract people and which will drive them away. Sometimes, discounts will put customers off a product which is supposed to be premium quality.
In many cases, strategic pricing has nothing to do with the actual price! Because it relates to how people see the product or service, it simply needs to sound “less cheap.” For example, some high-end grocery stores advertise certain deals as “Buy 3, Save 33%.” This is essentially the same as saying “Buy 2, Get 1 Free.” However, offering something to customers for free diminishes its value, which is not desirable in high-end stores.
Strategic pricing is one factor that subverts the race towards the bottom. The other is customer service.
When Customer Service Matters
In 2022, customer service is not always important to customers. If they’re buying consumable products online, most customers don’t think much of customer service. The reality is that they don’t expect to have to deal with customer service in these cases. Even if something goes wrong and they do have to deal with customer service, the stakes will be low.
However, there are industries in which customer service is everything. These are generally industries that sell products or services requiring a high level of technical care, or industries that deal with large sums of money.
One example is the currency brokerage industry. Currency brokers transfer sums of money internationally, and customer service is therefore of primary importance.
To give you a clearer idea of when customer service beats price in this industry, consider the following examples.
Price is a very important factor when it comes to currency brokers. For decades, customers expected high fees and commissions when transferring money internationally. Big banks and wire transfer companies charged flat fees as well as a percentage of every single transfer. They also offered exchange rates which disadvantaged both the sender and the recipient.
These practises led to the new wave of currency brokerages. Startups began to find alternative ways of transferring currency so as to offer the tightest margins possible. Wise was one of the pioneers of this new wave, offering no fees on many transfers while providing excellent exchange rates.
Around the time Wise was founded, companies like Azimo, WorldRemit, and Remitly also came into being. They all offered similarly tight margins, creating a competitive market that benefited customers.
However, these companies primarily attracted people sending relatively small sums of money. They promised low margins by ensuring their operating costs remained minimal. They targeted migrant workers and workers in the gig economy, who simply wanted a cheap and quick way to transfer their money. People who didn’t need any fuss around their transfers.
For people who were investing big sums of money or buying property abroad, these companies lacked something crucial: advanced customer care.
The more money you transfer abroad, the more you will pay in commissions. However, this does not lead senders of big sums to choose companies with the tightest margins. Rather, what is important to them is an assurance that they will get the best possible service. This, in many cases, means guidance from experts.
For these customers, companies like Currencies Direct have become popular. Currencies Direct offers relatively low margins, but more importantly provides hand-holding throughout the entire process.
They do this in 3 ways:
- dedicated dealers: a dealer helps with each transfer and is available for any questions. They provide advice when they see ways to increase affordability and efficiency. They are also available to take action if anything happens to the person’s funds (however unlikely)
- guidance on the best times to transfer funds: this ensures customers get the best rates on their transfers
- hedging tools: these provide additional ways to optimise affordability and avoid potential pitfalls caused by a changing exchange rate
Currencies Direct – as well as competitors like OFX and Key Currency – provide a service that is far more valuable to their customers than tight margins. Customers have the peace of mind knowing that they will be taken care of if anything goes wrong. They also recognise that these services will actually save them money in the long run, even if they are paying more for transfers now.
Customer care is also important in these services because technical issues can impact a customer’s money. Since most customers won’t have any idea of what is going on when technical issues occur, excellent customer support can prevent them from panicking.
We are living in a world in which there is a bigger spotlight on prices than ever before. However, this does not mean that companies should chase the lowest margins by pricing down their products and services. On the contrary, in many industries customer service is still far more important than low prices.