August 9, 2012

What Businesses Can Do About Tightwad Customers

What Businesses Can Do About Tightwad Customers

Put away those torches and pitchforks!

By this scientific definition, yours truly fits the characteristics associated with being a "tightwad" (yes, a bunch of scientists had the nerve to collectively call us "tightwads", you'll see the research in a second).

Here's the interesting thing: Those of us reluctant to part with our money are the way we are because our brains feel more "buying pain" than typical individuals.

If you're a small business, this should concern you because (on average) nearly 1 in 4 of your customers fit this persona.

The question then is this... how can businesses successfully sell to "tightwad" customers without wasting their time?

The 3 Different Types of Customers

As I mentioned, "tightwads" are harder to sway in their purchasing decisions because they feel more pain for each purchase.

Combine this with the fact that neuroscientists have quite literally defined human spending habits as "spend 'til it hurts", it's obvious to see why understanding this phenomenon is important for all small businesses.

It's also important because numerous studies on "tightwads vs. spendthrifts" have shown the following spread of customer types:

Customer Types

  1. Tightwads (24%) - people that spend less than they would ideally like to spend
  2. Unconflicted (61%, average)
  3. Spendthrifts (15%) - people that spend more than they would ideally like to spend

As can be seen, conservative spenders make up a large portion of the average customer base, so easing their pain should be a priority.

I will note that there is a subset of these conservative customers called "barnacle customers" that you don't want to sell to, but we'll address that later in the post.

For now, just know that your typical "tightwad" is not a customer that isn't able to see value in full prices: these aren't necessarily bottom-dollar sale chasers, they just have a harder time parting with their money.

Fortunately, there are ways that you can ease their buying pain that won't affect your other customers.

Minimizing Buying Pain for Tightwads (and Everyone Else)

There has been some incredible research using neuroimaging that breaks down the neural process of purchases.

With these findings and the research cited above from Carnegie Mellon University, we've found some consistent ways to appeal to thrifty customer that doesn't affect your typical customer (especially your more willing spenders).

Here's what you can do...

1. Reframe the product’s value

While all humans struggle with large concepts of time and money, this process is even more difficult for conservative spenders.

It's harder for so-called "tightwads" to rationalize expenditures when the length of time and price point are at their most abstract: for instance, when deciding to pay a large price for a product/service for a full year.

For instance, paying $1,000 a year for a continually used product or service makes it tough to grasp its actual value. When selling to these customers (and all customers), it's better to break pricing up into segments that makes value calculation easier to stomach.

For instance, at that price point, you can create an offer around $84 a month, which makes it easier to assess the value a customer might get from your offering. Additionally, you could take things further by going with, "for as little as $2.75 a day!", giving customers an exact daily value for your product.

Being able to say: "This product solves enough problems that it's worth a little more than 2 bucks a day," will go a long way in convincing customers who can't see the value at $1,000 per year.

For one-off purchases, be sure to highlight life-expectancy of the product: an expensive camera will seem a lot more interesting if the quality makes it feasible to last 5+ years and still take fantastic pictures.

2. Bundle products to reduce recurring pain points

Neuroeconomics expert George Loewenstein has noted that all customers (but especially conservative spenders) are averse to buying multiple accessories if they can complete their purchase in one swoop.

One great example that he cites is how car manufacturers often bundle accessories in the form of a "plus package" in order to reduce the number of individual purchases: few people could handle the pain of buying not only the vehicle but also leather seats, digital navigation, an upgraded sound system etc., but many people opt for a better package when it comes all together.

Loewenstein's research would assert that the reason this works is that these individual purchases force us to make a specific decision for each transaction, even if our "end goal" is just a generally upgraded vehicle.

By offering combined packages (for our digital camera example, imagine throwing in a memory card and a case), ALL of your potential customers can reduce their buying pain to one transaction if they so choose, and you'll have offered another unique value perspective for hesitant tightwads.

3. Pay attention to the details

One of the more surprising findings from the aforementioned research is just how true the expression, "the devil is in the details", is for conservative spenders.

Multiple minor changes in language have been shown to greatly effect customer's reactions and receptiveness to making purchases.

A “small” change creating big sales

In what is perhaps the silliest bump in a conversion rate that I've ever seen, the CMU studies successfully revealed that changing the description of an overnight shipping charge on a free DVD trial offer from "a $5 fee" to "a small $5 fee" increased the response rate among tightwads by 20 percent!

Let's put those two offerings side-by-side for increased hilarity:

  • "a $5 fee"
  • "a small $5 fee"

Has the word "small" ever felt so big? A 20% jump in the response rate by adding a single word... apparently the devil really is in the details!

How the right messaging can generate a 20% increased response rate from "thrifty" spenders - http://hlp.sc/Qgdkbk
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When you have additional charges that can be accurately defined as small or unimportant, be sure to highlight that they are. Reminding people a charge is small definitely affects their perception of it.

Appeal to utility over pleasure

In an additional CMU study, researchers tested conservative spender's reactions to paying for a $100 back massage.

They framed the offer in both a utilitarian way ("it can relieve back pain") as well as with hedonic terms ("it's a pleasurable & relaxing experience").

Although the "tightwad" group was 26% less likely to be persuaded by the hedonic message, they only lagged by 9% when it came to the message promoting utility, which is pretty impressive considering the offering was quite the luxury purchase (only those with true back problems can justify massages as anything but a luxury).

While many products are going to combine both of these messages in their selling, be sure to emphasize utility when selling everything but ultra-luxury items (where pleasure is likely the main goal).

It’s either free or it isn’t

In Dan Ariely's book Predictably Irrational, he showcases the importance of "free" in respect to things that are almost-free.

Amazon learned this important distinction when they launched a new "free-shipping" promotion with the purchase of every second book. When looking at sales, marketers found that every country except France showed a big jump thanks to the new offer.

What's the deal with the French?

As it turns out, nothing: Amazon had in fact made the offer in France to include a menial charge of only a single franc (~20 cents). In essence, this is really the same offer, as 20 cents is essentially nothing when compared to buying a book of $10 or more, especially when it's just for shipping.

The results were clear: performance didn't change when this offer went live, but when things were switched over to "free" shipping in the subsequent weeks, sales improved to levels seen in all other countries.

It's interesting how this relates to multiple purchases and their multiple pain points (the bundling examples discussed above).

When selling to customers, consider if it's worth adding on additional minor charges. What if, instead, you incorporated these costs into you're overall offering?

At this point, these extras would be seen as free and wouldn't create another decision point, easing the process for especially conservative buyers.

When You Shouldn’t Even Bother...

"Say it ain't so!"

Although it does pain me to say this because I (along with the rest of the Help Scout team) love customers, there is a certain kind of customer you most certainly don't want to bother with.

In a paper called The Mismanagement of Customer Loyalty (HBR), these customers are identified as "barnacle" customers because they:

...do not generate satisfactory returns on investments made in account maintenance and marketing because the size and volume of their transactions are too low.

Like barnacles on the hull of a cargo, they only create additional drag.”

Ouch!

(Again, these customers are labeled as such based on their spending habits, it is NOT an assumption of their overall character) :)

It might seem strange to want to avoid customers of any variety, but here's the cold hard truth: you are doing both you and this sort of customer a favor.

You avoid customers who aren't truly interested in your offering, and you also help these customers who wouldn't truly fall in love with your product anyway.

You can do this by positioning your brand so that it outright favors certain customers over others, and you don't have to be rude in the process.

Let's take a peak at how our CEO Nick Francis does things. Here's a screenshot from one of our free webinars:

Help SCout Webinar Screenshot

Nick makes things perfectly clear for all those wondering: while customer service is important for practically every business, Help Scout is going to be optimal for certain types of businesses.

Keeping this in mind, we also position our content around these beliefs so that anyone visiting our blog gets what we're all about right away. Check out a few of these posts:

Research Reveals Good Service Beats Fast Service Every Time

The Psychology of Personalization: How Waiters Increased Tips by 23 Percent (Without Changing Service)

The Art of the Frugal Wow - How Small Acts Create Big Loyalty

You'll notice a trend in all of these articles. There is an emphasis on the power that small businesses have in being able to give personalized service, the importance of competent and friendly service over rushed ("quick") service, and how great customer experiences aren't tied to huge expenses.

All of these articles are interesting reads in their own right, but they are designed to be most interesting to one group of people: the typical Help Scout customer.

In the HBR paper mentioned above, the two authors recommend a general avoidance of "barnacle" customers, but I'll go one further...

Your brand's positioning should be actively trying to avoid customers who aren't suitable for your offering.

Why your brand's positioning should be actively trying to avoid customers who aren't suitable for your offering. - http://hlp.sc/Qgdkbk
Click to Tweet

This way, you won't have to play the "price game" with people who aren't truly interested in your product (leaving you time to focus on superstar customers), and these customers won't be wasting their time by trying an offering that isn't for them.

At the end of the day, it's really a win-win!

So don't be scared to strongly position your business; define your offering, describe your ideal customers, and be sure to outline just who isn't a good fit for your business, you'll be doing everybody a favor in the long run. :)

Now It’s Your Turn...

Once again, thanks for making it all the way to the bottom!

Here's what I'd love to hear your thoughts on today...

  1. How has your brand actively tried to make the buying process as pain free as possible? Do you do anything specifically to help convince more conservative spenders?
  2. How does your business position itself in order to avoid "barnacle" customers?
  3. As a thanks for reaching the bottom, be sure to pick up our free e-book on 75 Customer Service Facts, Quotes and Statistics, which you can download instantly!

Thanks for reading, and I'll see you in the comments!

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Written by Gregory Ciotti Greg ciotti

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7 Comments

Joseph Putnam Aug 10

Who's the author of this post? I can't find a name anywhere...

Great post.

Gregory Ciotti Aug 10

That would be me Joseph!

Thanks for the kind words my man, always appreciated.

ReviewTiger Sep 6

Great post! I have at least three actionable items I can take away from this. I especially liked the part about positioning your brand to favor certain customers.

Gregory Ciotti Sep 6

Glad you liked it!

Thanks for stopping by.

Brett Stockley Sep 7

Great post Greg. We all have these clients. Nice to get some tips.
brett

Vilma Nov 14

Hi there, just became aware of your blog through Google, and found that
it's really informative. I'm going to watch out for brussels.
I will appreciate if you continue this in future.
Numerous people will be benefited from your writing.
Cheers!

Rozel Nov 4

Gregory,

Excellent article, congrats! Does the following scenario falls under your "tightwad" category?

Husband and wife shopping together stop by to look at our one-off designer jewelry. She tries something on and genuinely likes it. He likes it. He asks the price and even though it is "expensive" (by the look on her face, but under $5000), he really wants to buy it for her anyway. She won't let him, he shrugs his shoulders, and they walk away. The sale is lost. Any way to salvage this sale? Seems the recipient of the gift is the tightwad.

Comments appreciated, this has happened more than once!

Thanks.

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