The law of supply and demand is well known in economics: the price of a product will vary until it rests at a point where the quantity demanded (for a given price) matches the quantity supplied (for that same price). However, economic theory is shaped by historical moment. Many background factors influence price and these factors can change radically. We are currently seeing the emergence of a new determining factor: customer experience.
We can compare this with the time when Adam Smith elaborated on the law of supply and demand in “The Wealth Of Nations” (1776). In those days, most factories and farms were run by individuals or small partnerships. These “capitalists” were actively engaged in the production process, often walking the floors and shouting instructions. Markets were mainly local, with only a few commodities traded internationally – and it would still take about a century for slavery to be abolished.
Most markets back then were served by numerous small-scale companies, allowing prices to be freely set by the market according to supply and demand. When Adam Smith described how markets operate, he used butchers, brewers and bakers as examples. The world was very different, but this ideal of perfect competition has stayed with us. Since then economics has identified many factors which interfere with competition (such as trade tariffs, monopolies and government regulation).
At the same time, marketing techniques have developed. Marketing is often seen as a just way of making markets work better, helping companies to reach customers and also to adapt to their demands. However, marketing is evolving into building a relationship between the two. Companies and customers no longer interact occasionally, as in a classic market, but continuously in day-to-day life. The impersonal law of supply and demand is being reframed by human relationships.
This is moving marketing away from market factors like price and package, and into the art of crafting experiences. Engagement is measured by the impressions that brands leave on customers, and this is starting to be defined and analysed. There are 4 key Moments-Of-Truth (MOT): moments in which there is a critical decision to stay or abandon a company. This decision might be reflected immediately, or might plant a seed that will bloom later on.
Zero MOT. Google has described this as ”when you grab your laptop, mobile phone or some other wired device and start learning about a product or service you’re thinking about trying or buying.” About 81% of shoppers conduct online research before purchase. This is why pagerank (which pages appear first in a search) has become so important: it is possible for companies with the same product and distribution to have different price/quality balances. A company can charge a premium price and sell more, simply through search engine optimisation.
First MOT. This has been idealised by Proctor&Gamble (P&G) as what people think when they first see a product. This contact is vital for the purchasing decision later in the customer journey. Nowadays, what customers think about a specific product has been well pre-framed by virtual online interactions. For example, if a product is framed by positive reviews online this will surely impact price perception when it is first seen by potential customers. Even the homepage or Facebook page of a product can transmit certain qualities that drive price. Digital presence (homepage, app, social media), experience/content design and user generated content/reviews are therefore critical.
Second MOT. Also under P&G methodology, this is defined by what people feel, think, and sense as they experience a product over time. This includes managing customer relationships over time. As I have written before, digital transformation is shifting customer journeys from push messages to human communications. This allows companies to practice “unbalanced” prices in relation to cost, for example in luxury products, and to have prices fluctuate during the relationship according to the context.
Ultimate MOT. This is the pinnacle of customer experience, as customers verbalise and share it with others. This experience becomes other people’s Zero MOT. A memorable experience should therefore not be limited to the customer him or herself, but aim for the experience to be shared. This can be picked up at anytime by potential buyers and have a quite an impact on price perception and on-the-spot purchasing decisions: 82% of smartphone owners use them to help make decisions about a product (Google). Astoundingly, 93% of people who research a product on a mobile device go on to make a purchase (Google), converting them from shoppers to buyers.
Adam Smith described how markets operate under the famous “invisible hand” in the “Wealth of Nations”. However, it is less know that this was only half of his ideas. In the “Theory of Moral Sentiments”, Adam Smith also describes how personal relationships are led by “mutual sympathy“. He would be surprised, but certainly recognise, how customer experience operates nowadays.