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Tips, advice, and information for South African business owners

27 Jan

Isolate Payment Pain

Imagine purchasing an expensive vacation package for a luxury island resort. Would you rather pay for your holiday while trying to relax on the sunkissed sands outside your private bungalow? Or settle everything months in advance before you even depart?

The advantage of the latter option is that it decouples the payment experience from the consumption experience. It’s more difficult to relax and enjoy some well-deserved leisure when you have a large unsettled expense at the back of your mind, and seeing the funds exit your account will only detract from the vacation experience further.

Smart companies separate purchase, payment, and consumption experiences to isolate the pain that their customers may endure when parting with their hard-earned cash. Not only does this amplify the pleasure that their customers derive from their purchases, it also creates leverage for making more money.

For example, Netflix and Audible both enjoy higher customer lifetime earnings by charging a subscription instead of pay-per-use fees. The subscription is a sunk cost by the time a customer watches a series or listens to an audiobook, so it feels less like a direct expense and more like an upfront investment. The service experience is enhanced because there is no proximate payment to detract from it.

Isolating payment pain has also been integral to Uber’s disruption. We’re far more likely to relax and appreciate the convenience of being transported when we don’t have to think about how much it will cost or manually pay our driver upon reaching our destination. It’s precisely this psychological dynamic that makes it easier for Uber to inflate fees (and dramatically increase their earnings) as part of their controversial surge pricing model.

Many business owners obsess over selling, pricing, and service. However, they rarely pay attention to how purchase, payment, and consumption experiences intersect. Simply changing when or how your customers pay for their purchases can significantly amplify (or erode) their satisfaction.

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