Understanding the difference between what customers “ask for” vs. “want to buy”

Foundations Series

In the world of entrepreneurship, startups often find themselves at a crossroads when it comes to product development. While building something a customer explicitly asks for is an essential step, staying in this phase for too long can hinder a company’s growth. In fact, many early-stage companies (e.g. pre-seed and seed stage startups) sit and get stuck in this phase, eventually wasting time and resources that can be better spent elsewhere. 

Building something that a customer “asks for” should just be an initial layer of need and an important directional step in building a product and your company. As a result, there is a crucial difference between building something a customer asks for versus something they want to buy that all companies should be aware of. So, let’s take a look at the challenges early-stage companies face and the significance of transitioning from necessity to desire.

The Initial Layer of Need

When a customer asks for a specific product or feature, it marks the initial layer of need. This interaction is a crucial step for startups, essentially guiding them in the right direction as they seek to address real problems faced by their target audience. Many pre-seed and seed stage startups find themselves in this phase, diligently working to fulfill customer requests. So, a common example that illustrates the concept of this difference between want versus need can be something as commonplace as working out and going to the gym. While the initial “need” for someone who works out is likely to get healthy, the true “want” may be that they would like to look like their favorite athlete or celebrity, setting that as a concrete end goal to work towards.

Stuck in the Loop:

However, a significant challenge arises when companies get stuck in this phase. While addressing immediate needs is important, dwelling exclusively on building what customers ask for can create a loop, preventing companies from reaching their full potential. This loop can become a trap for early-stage companies, hindering their ability to evolve and adapt to the changing market demands.

Furthermore, do customers actually even know what they want? This question is even more meaningful for products and services in new emerging technologies and innovations. And, if you give customers what they want, will they still necessarily want it in a month or a year? Looking into the past, there are many case studies of products that companies developed taking into account what customers have “wanted”, only for the actual demand to be less than expected or last for a short period of time before these same customers moved onto something else. 

A relevant example of a product that did not meet expectations despite high initial customer interest is Google Glass. Introduced as a revolutionary wearable technology, Google Glass was a highly anticipated product that specifically offered augmented reality features in a wearable format. However, despite the significant hype and interest generated from the announcement, it failed to gain widespread consumer adoption, largely due to concerns regarding privacy, usability, and social acceptance. While the initial explosion of interest seemed to align with the idea that customers “wanted” a product like Google Glass, the actual demand for the product lasted a very short period of time until Google eventually stopped selling the product to consumers altogether.

Why Can’t We Get Out? Why Is This a Problem?

The primary reason startups struggle to move beyond building what customers ask for is a fear of deviating from the familiar. Founders may be reluctant to step out of their comfort zones, fearing that addressing a broader, more latent need might alienate their existing customer base. This reluctance to explore uncharted territories can lead to stagnation, inhibiting a company’s ability to innovate and grow.

Moreover, many startups take on the common belief that “the customer is king”. If you don’t give them what they want, then they will switch to someone or something else who can. As a result, this can intimidate many startups into simply trying to cater to the customer’s desires when they should really be determining what their customers need above all else.

From Need to Want: The Importance of Willingness to Pay

The transition from building what customers ask for to creating something they want to buy hinges on the concept of “willingness to pay.” Wanting to buy implies a deeper connection and a higher level of need—a product or service that customers not only find useful but are also willing to invest in financially. This transition is crucial for the survival, growth, and success of a company. Founders can get stuck in the phase working towards that initial layer of need based on what the customers “ask for” when they should really be building towards a higher level of need based instead on “willingness to pay”. Focusing instead on this higher level of need allows founders to set their companies up for more sustained success, necessary for their startups to survive, grow, and ultimately win.

For example, the Segway Personal Transporter was hyped as a revolutionary way to travel short distances. However, despite the enormous fanfare that it met when introduced, the Segway ultimately failed with production eventually halting in 2020 because the makers did not think about “willingness to pay”. More specifically, though it was an exciting piece of technology, it offered very little real-world utility and eventually failed due to its relatively high price, safety concerns, and limited practicality. Because consumers were unwilling to pay for a product that offered very little in terms of utility, it resulted in very little sustained success for the product beyond the initial excitement.

Why Is Wanting to Buy Important?

Willingness to pay is a clear indicator of value. When customers are not just asking for a solution but expressing a genuine desire to invest in it, it demonstrates a product-market fit that goes beyond mere necessity. Companies that focus on building what customers want to buy are more likely to establish a sustainable business model, ensuring not only survival but also long-term success in the competitive market.

Final thoughts

While building something a customer asks for is an essential step in product development, it’s crucial for startups to recognize the limitations of this approach. Transitioning from fulfilling immediate needs to creating products customers want to buy is a strategic move that sets the stage for sustained growth and success. By understanding the concept of willingness to pay, founders can break free from the loop of building to need and unlock the full potential of their products and companies.

Did you know? 

We shared this article with our email newsletter community first. If you want to get access to our articles and insights before anyone else, you can sign up here (plus, it’s free!). 

Found this article helpful?

Sharing is caring. ❤️

Share this on social – super easy 1-click share buttons below 👇 – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Pricing Psychology 101

HelloAdvisr Pricing Psychology

Have you ever seen a message that said “limited time offer!” and ended up purchasing something you never thought you even needed in the first place? 

If you answered “yes”, then that company or brand has successfully used psychological pricing to motivate your impulsive purchasing nature into a sale. 

Isn’t it incredible how the very same product applying different pricing techniques can greatly impact spending habits? 

We complied 5 of the most useful – and not the most obvious – pricing psychology tactics that you need to know to create the right perceptions with your customers and increase your sales. 

These pricing tactics are supported  by research and help you to navigate the type of price communication and perception for your product with your customers. 



Less is More

The “Less is More” concept applies both visually and audibly. 

Visually, the more symbols and digits your price tag has the pricier your consumer assumes your price to be. For example, imagine you had a product priced at $1,399.

If you present the product price as  “$1,399.00” it would be perceived as more expensive than if the same product had a price tag of “1399” written on it.

If a challenge is the price perception of your product is high or “expensive”, reducing the number of symbols or digits  can be an easy way to shift perception with your customer. 

Audibly, the more syllables the price contains the more expensive it is perceived to be. In a study by researchers at Clark University and University of Richmond, researchers found a positive correlation between number of syllables and perception of how expensive a product is perceived.

Despite being the same in length, the study found that despite 59.99 being a higher number it is perceived as less expensive. 

 

 

Time Constraints

If you have been shopping any time this past month, odds are you have seen a sign or messaging that says something along the lines of “Today Only! BIG Sale!”. 

In reality, these sales can actually occur pretty often but by creating this sense of urgency pushes you to spend money now. This taps into consumers’ pricing psychology. In this case consumers’ FOMO (fear of missing out) on an opportunity to save money and get a good deal. Equally powerful is the fear that everyone else got a better deal than you. 

An infamous example that shows how well time constraint sales worked is the day that JCPenny decided to get rid of all their sales, which played an important role in the company’s 20% sales decline. 

 

Pricing Order 

You can positively influence how your customers feel about more expensive options by placing your products in order of descending prices. 

The effect of pricing order was tested by three researchers Kwanho Suk, Lee Jiheon and Donald R. Lichtenstein, who worked with a bar and changed the order of beer prices over a span of 8 weeks to find the sequence that maximized revenue. At the end of the research, it was concluded that pricing high to low would increase sales by approximately 4% for each beer sold.

The first reason that the researchers listed as contributors to why “high to low” pricing maximizes prices is that the initial prices create an anchoring effect. By seeing the higher prices first, consumers will use those prices to compare the rest of the list to. 

The second reason was loss aversion, which is the human’s tendency to focus on losses. With pricing low to high consumers will perceive that they are “losing” the power to save money. While pricing high to low, consumers will feel like they are “losing” quality. 

 

Small Changes Can Go A Long Way

Pricing similar items at the same price can easily deter consumers from purchasing the product. 

This was demonstrated by a study done by researchers from Yale who found a 31% increase in purchases, from 46% to 77%, when identical items were given a slightly different price. In their study, they utilized two packs of gum which were both initially priced 63 cents each and then 62 cents and 64 cents. 

When the prices of gum were different, it decreased the consumers’ need to spot differences and made the purchasing thought process more simple thus leading to more sales. 



The Power of “Discounts”

Consumers look for a deal and for some, this objective drives the pricing psychology and perception. 

With the transaction utility effect, consumers are motivated by the potential of losing out on a “deal”. if the exact same product at the same price is offered to the consumer, the one with a “discount” label can have a higher willingness to pay. 

For example, if a retailer offered a chair but with two different offers. One offered the chair priced $100 dollars. For another offer, the exact same chair is also priced at $100 dollars but shows that the chair was discounted 20% from $125. In this scenario, studies have shown consumers would be more willing to purchase the second option – the chair on “discount” even if the price is the same.

This is similar to how the “timing constraints” technique works. As consumers are wary of missing out on a good deal, that is a core motivator and shapes price perception more than the number itself.



Key Takeaways On Pricing Psychology

Companies with powerful pricing strategies leverage all pricing “senses” that best connect with your customers. This includes understanding your customer’s pricing psychology. This helps to focus your customers on the unique value-adding elements of your product, but also to align price perceptions with that value.  

There are appropriate applications for each tactic. Time, place, frequency, and customer ring all should factor into how and when such tactics are used. Selective use can have an outsized impact on sales and perception. Here your strategy and research will always pay off when it comes to pricing. 

These  small changes can drastically impact your sales in the long run so consider exploring  these simple changes to your pricing playbook!

 

 

 

Did you know? This article was originally shared to our email newsletter subscribers. If you want to get early access to articles, tools and updates signup for our free bi-monthly newsletter clicking here. 

 

 

Found this article helpful?

Sharing is caring. ❤️

Share this on social – super easy 1-click share buttons below 👇 – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Reimagine Segmentation: Create Customer Rings

Customer rings

Customer segmentation is a powerful tool for businesses and entrepreneurs. 

Much like creating a business canvas, very few startups today skip doing a customer segmentation. When we surveyed more than 200 startups we found that more than 90% stated they had done customer segmentation. 

That’s good, right?

Sort of. Most customer segmentations do distinguish potential customer groups by identifying common characteristics or attributes within those groups. What is often missing is that these segmentations are rarely actionable. 

Some important action-oriented questions that is missed include: 

  • Does willingness-to-pay differ between groups? If so, how much?

  • How can our packaging or offer create different responses from our segments? 

  • What is the basis for different perceived quality between segments? 

Unfortunately, for many startups the framework and research supporting their segmentation is too broad and unfocused. 

Let’s take a look at how customer segmentation is traditionally done. 

 

A Breakdown Of Traditional Customer Segmentation

In traditional customer segmentation, companies create groups or clusters of their customers based on a selection of traits and descriptives to identify those groups of customers. 

Generally these segments are based on socio-demographics such as gender, geography and income. For more B2B companies, segments are created using high-level attributes such as company size, number of employees and number of locations. Helpful, but just scratching the surface. Some segmentations go further and identify psychographics such as behavior, needs, values, and preferences.

The ultimate goal for customer segmentation is to help the company to engage and sell their products more effectively and efficiently. When done right, effective segmentation is measurable by metrics such as: 

  • Sales velocity and conversion rates

  • Discount rates 

  • Customer inquiry and engagement rates 

  • Willingness-to-pay and price increases

While this basic framework for segmentation is a helpful starting point to get a general understanding of your customers, this is not enough.

What’s Wrong With The Old Way?

Too many times, companies in the early stages of their business do a broad assessment of their customer and then move on. When segmentations are not created with the intent of using them (for pricing, marketing, sales, etc.) they become useless.

These segments are usually too broad and descriptive. Segmentations should be designed to be actionable and prescriptive for a company’s go-to-market strategy. At the early stages of a company, specificity and focus is critical. Unfortunately, many customer segmentations exercises often fall short to help make these critical decisions.  

Being too broad can also be expensive. Why? Defining your customer segments with non-actionable generalities exhaust your time and resources while also giving you too many inconsistencies and inaccuracies. It is too common to hear companies that have created a customer segmentation, but when they go-to-market struggling to focus on a specific customer. 

Being too broad with your customer segmentation allows for too much leeway and causes a larger deviation from your actual customer. This unintended deviation costs your marketing and sales money as they throw good money trying to reach customers that are not within your actual segment or the segment your business should be targeting right now. 

Another missed opportunity in traditional customer segmentation is the focus on change and adjustment. Over time, companies inevitably change and develop. What sometimes is forgotten is that their customers change as well. 

Many times companies progress and not re-analyze their customer segments. As this occurs, companies begin to market their products towards new groups who don’t really care or even want what they offer. Only going through one round of customer segmentation can be detrimental which is why it is important to adapt and update segmentation over time.

Introduction to Customer Rings

While the initial segmentation steps are useful, pitfalls make it difficult to develop a go-to-market strategy that actually works. An alternative approach is to assess your segments as customer rings.  

Customer Rings Approach

Customer rings are micro-segments that look at customer segments in terms of layers. Customer rings start with traditional customer descriptives, but go further by identifying customer preferences, perceptions, value drivers, and for more advanced companies, willingness-to-pay.  

The customer rings approach consists of three main principles.

Your customer segments are layers

Customer rings are layers. Like a tree trunk, the core is the foundation your business is built on. The core circle are your loyalists. These are the initial customers who go beyond function and features, and believe in mission and inspiration. 

As you move further away from the core, these segments are likely to have different requirements, urgencies, product alternatives, and potentially more price sensitivity. 

The further you move towards the outermost ring, the closer you are to  the weakest and most vulnerable and sensitive rings. You can ‘protect’ these outer-rings by marketing your product to meet their needs.

Each ring layer are hyper-specific 

Each company is made up of not only 3 or 4 customer types, but a series of 10 or more customer groups. Customers today are expecting more customization and tailored experiences, making generalized groups less effective. 

Think of your customer rings in sub-segments and get hyper-specific. We advise our clients to take every segment that was originally researched and split each segment a further down into four additional separate rings. So if your company has 3 customer segments to start, then the goal is to break this down further so you have up to 12 customer rings. Ensure sufficient time is spent on customer research and behavior attributes. 

This can be great practice for your company to go deeper, and define your customers even more specifically. While the starting point may be an initial set of hypotheses, the end result of any set of customer rings must be research-driven.  

Each ring is actionable

Each progressive customer ring is a step. They are customers that not only must be targeted, but where products, packages, and pricing are designed to their needs and value. 

Each customer ring has their own value drivers, so you are building offers for each targeted ring. The prices you use do not only go from high to low, but different pricing models (e.g. subscriptions) can be used to align with that customer ring. 

Some founders may question whether the rings are “big enough” or may be missing potential opportunities. It is important to recognize that winning the earlier rings are hard enough. Studies find that a startup does not start to move into the growth stage until they have won 2% to 5% of their prospective target market. 

In our own experience with thousands of startups, we see that chasing opportunities creates lost focus, and less wins and validation for initial customer segment hypotheses. Hyper-focus, clear action items and accelerated wins is the winning combination. 

Benefits of Using A Customer Rings Approach

One of the key benefits of using the customer rings approach is that it is actionable. 

For example, companies that are actively going-to-market and acquiring customers, willingness-to-pay and price drivers must be a core dimension of any customer segment. 

In a study we conducted, we found that more than 90% of companies have created a customer segmentation, but less than one-third know their customer’s willingness to pay. 

That raises an vital question of how well we know the customers we want to attract and what offer makes the most sense to win them as customers. A key insight for any customer segmentation. 

By using our customer rings approach helps you understand not only to identify the customer, but begin to identify what drives value for that segment.

There are four primary goals for your customer rings that will create stronger customer segmentation. Customer rings are: 

  • Measurable and quantifiable;

  • Describe detailed shared attributes of your unique customer; 

  • Make it easier to target ring-specific customers; and 

  • Drive higher impact business outcomes (e.g. conversion, retention, and profitability).

Final Thoughts 

Your goal is to reach customers who find the most value in what you offer as effectively and efficiently as possible.  While traditional segmentation is a helpful first step, customer rings enhance the power of segmentation. 

Rings are designed to be tight and focused. If more granular rings are quickly acquired, then you can move to the next layer and craft the go-to-market accordingly. If you run into challenges making meaningful headway into a specific ring, then it should give you room to make necessary adjustments without the noise of different ring layers. 

Customer rings help you to embrace diversity and the uniqueness customers identify with. This  focus and targeted actions to drive positive results your company requires.

Found this article helpful?

Sharing is caring. ❤️

Share this on social – super easy 1-click share buttons below 👇 – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Love Your Customers. Talk To Them.

What is pricing?

It’s a question we often ask when we are invited to speak or host a workshop. It’s not a trick question. And contrary to the responses we get, it’s not that complicated. 

Pricing is the pursuit of understanding people; your customers. These customers who will support your company, brand and product. The people who get the value you offer. That understanding is the foundation from where you will price your product or service. Unfortunately, many companies do not know who their customers are. They have surface level information about who they would like their customers to be, but do not know who they are.  

This is a lost opportunity, especially for companies still in their early stages. They might not realize it, but they’re trying to boil the ocean. This is expensive, time consuming, and for too many companies fatal.  By digging in and learning who your real customers are, you can help create empathy and connection in way that builds long-term value and identify growth opportunities many miss out.  

What is vital is the work to learn not just who they are, but to learning what they value early on in the relationship. This takes a conversation. Yet many companies we come across rarely if ever, talk to their customers. In more extreme cases, some companies have NEVER talked to their users. NEVER. 

The real struggle is not that customer insight is undervalued by these companies, but a struggle with what to ask; how to have the conversation. When we’re not sure what to ask and why, we’re left being reactive to what information we’re able to get and not zeroing in on insights pushing the relationship forward. 

For those still on the fence on whether it is worth the effort to dig in on customer insight research, here are three benefits that will help you reconsider. 

 

Price better 

If you have heard of value-based pricing, you will know that the basis of this pricing approach is to create prices based on the value – real or perceived – your customers get from your product or service. One popular examples of value-based pricing is Apple and the premium price they can charge due to the value they offer customers through their product’s technology and brand association. But it’s not just upmarket where value-based pricing works. More ‘value’ brands like Warby Parker have successfully used price as part of their growth strategy. Instead of going higher for their modern and cool eyewear brand, they went lower for their digital-first customers willing to buy glasses online. 

In both examples, what helps these companies price effectively is they are pricing for their customers. Despite their massive success, they still win the loyalty – and spend – by specific customer segments. In the case of Apple’s flagship product, the iPhone, they have held a largely second position in global smartphone market and often less than 20% of the market. In the case of Warby Parker, while well known, in the market of online eyeglasses, they are far from the market leader Zenni Opitical who hold a 50% market share. 

What these examples can teach us is that if we know who are customers are, what they value and why, we can make more informed pricing decisions that align with who those customers are. If we take a boil the ocean approach, it becomes increasingly difficult to gauge whether the value proposition or any element of value, is resonating with customers and the market. For many entrepreneurs, this noise causes them to turn to price – often through price decreases and discounts – when they did not have to otherwise. 

 

Target your market more effectively 

While the goal of many companies is to be product of choice for all customers, the reality is only a segment and often sub-segments of customers are going to value your product. More so early on in the life of your company. 

That means, rather than trying to create a general proposition for all customers, it can be more effective to target specific customer segments and in stages. To execute this type of go-to-market strategy, you have to know more than customer demographics and data offered by your competitors. You need know about your customers. 

Knowing your customers means you can not only identify them – demographics – but you understand where and how they derive value. You understand why they making seemingly irrational buying decisions. Why they seem to be willing to pass up offers to save money, save time, be happier if all they have to do is buy your product or use your service. By getting to this level of understanding will help you target your market more effectively and take a lot of the guesswork out of how your company is going to market. 

 

Improve customer engagement

We hear it all the time from companies with a loyal, if not die-hard followings, “Our users/customers get it.” This is not by chance.

Companies who know their customers can create channels to better engage with them. This can range from marketing communication to customer service. It is far more difficult if the base you are trying to service is identified as just ‘customer’. Customers expect more from companies they buy from, and with more personalized services and messaging, knowing your customer is even more important. 

There is also a more passive benefit improving customer engagement. The more you can better engage with your customers, the more you can learn ways to improve your product, your service, future opportunities is different markets.  Just like our customers who take cues from reliable sources they trust, the same can be true of the signals your market is sending to your company. The first line should be from customers you know and trust. 

 

Final thoughts

We often overestimate our understanding of our customers and this makes decisions across pricing, go-to-market and customer engagement sub-optimal. Many times we take cues from our competitors and conclude equivalence. Other times we make generalizations or assumptions about a group of customers and make conclusion from that.

Too often both loses out of the important fact is you need to take ownership of your customers which starts by knowing who they are and what makes them tick. By doing the work to research our customers, which includes actually talking with them, we can close the gap in the vital business decisions that need to be made each day. 

This is not easy, but the time and money saved and the new opportunities create will help this an investment worth making.  


 

Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter, and LinkedIn.

A Easy Guide To Designing Customer Research

Whether or not the customer is always right, the customer is always the one who makes the purchase decision in the end. Over the past few years, more and more companies have shifted to a customer-oriented business strategy as the impressive performance statistics of these businesses roll in. CMO Magazine reported that customer-centric businesses have been 60 percent more profitable than their peers, and nine out of 10 CEOs surveyed in the US have agreed that they will invest in programs to strengthen customer engagement in the year ahead.


Building A Customer Focus Journey

The basic starting point is the customer focus journey. According to the Harvard Business Review, this journey generally follows along four stages:

  1. Info gathering – where the company uses a dedicated team or third party to collect information about their existing customers and desired customer segments.
  2. Data mining – where past customer behavior is analyzed to build a working model of customer motivation and a series of ideal customer personas.
  3. Predictive analytics – where a separate team builds on data analytics to discover and propose future pathways for customer-oriented product and service development.
  4. Active engagement – where customer wishes and preferences are accommodated collaboratively in real time.

One aspect of this journey that may come as a surprise is that many companies, especially startups and entrepreneurs, do not do their own customer research, especially in the early stages. For many, the process of what information to collect, why it is information and how will the information help to make better future decisions is often loosely constructed, if at all, early on.   

There is no question that customer research is a core component of a successful company. Unfortunately, companies that don’t put in the work to know who their customers are or what those customers want are at a substantial disadvantage in competitive markets.

Customer research helps company leadership teams figure out their competitive strategy, product development and go to market including their pricing strategy. Not speaking to your customers puts you in a position where you’re making pricing, product, sales and marketing decisions in a vacuum.


Best Practices For Designing Your Own Customer Research

When it comes to customer research, many entrepreneurs and business leaders share a perception that this is simply too difficult or time-consuming (read: not scalable). Fortunately, that doesn’t have to be the case as long as the research – like any good test – is well structured, well planned and well executed. Here is a useful template for launching your customer research project in the right direction:

1. Define your objectives

Create a clear set of goals your research must help you achieve. This might involve defining the customer segments, identifying customer attributes, preferences for specific features, pricing, etc. Limit yourself to the two or three highest priorities.

Here you want to think about the key questions that you either don’t know or assume to be true about your customers. Be precise in the language you use. Consider how customers would interact with your products/services and which factors would discourage them from engaging with you.

Think two steps ahead of the typical answers customers give. You are looking for insight that gets at what is really needed to move forward with your market strategy. As you build your objectives, consider how the insights from the research will be used. Ultimately, the goal is to design research that is directly actionable and aligned exactly with your top objectives.

2. Define your audience

The next step is to create a persona for the type of customer you want to speak to. Get as detailed as you can about the customer segment. Investigate who your customer are now and think about who you want to attract for the long term. When you find your target, look into where they are spending their time to determine how to attract them. If you can’t tell, ask.

If you still struggle defining your audience, one source of inspiration is ad targeting platforms like Google Ads or Facebook. Facebook’s ads platform is a useful guide on factor defining customer segments; even if you are not going to do Facebook ads.

3. Design your customer research tool

Customize existing tools to fit what you need. Gather data on great online surveys, in-person interviews, focus groups and industry trend reports. Then you can improve and refine them to suit your purposes. Each tool will offer different benefits for collecting the relevant data and insights that go into intelligent, actionable decisions.

While these examples were written with new product development in mind, this open-ended approach can also be helpful for more mature companies and products. Again, what you are really looking for are gaps in your knowledge and challenges to your assumptions about the market, customer, and product.

4. Build-Measure-Learn

The customization in the above point doesn’t end at the interview. You will very probably not get everything you want the first time, but by deploying the Lean Startup‘s methodology of Build-Measure-Learn, you’ll get better with each execution. Eliminate ambiguity from questions, beware of question fatigue, widen your sample and do it again.

Crafting your questions is an art. Don’t rush through the revision process, as this can mean the difference between nice-to-have interesting responses, and actionable insight. One common mistake to avoid are simple yes/no questions but code in structural limits on open-ended ones. Common question types include:

  • How do you do [a process, problem resolution] now?
  • How do you wish that process was different/better?
  • When during your day, do you see this as a significant problem?
  • What kinds of workaround do you currently use to address these and similar problems?
  • Why do you use those specific workarounds?
  • What issues did you face with the current solutions available in the market?

5. Analysis

The last step of this process is to design questions so that they can be analyzed easily. Whether quantitative or qualitative responses, you want to create a functional database of information that can be critically assessed and revisited for comparison over time. Treat your customer research project like a form of test.

From the beginning, you will need clarity on what you’re testing for and how you’ll measure whether this particular test was successful or not.


Final Thoughts

Designing customer interviews can be intensive, but it doesn’t have to be complex. Even the experts use the iterative model to build informed hypotheses, get answers, learn from the data and try again.

With just five steps – defining your objectives, defining your audience, designing your tool, mining the data and measuring the success of the tool – you can help create an agile organization that is customer-oriented and well ahead of the competition.


Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left-side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter, and LinkedIn.

The Core Principle Good Companies Miss In Their Pricing Strategy

The most successful pricing strategies are rooted in the pursuit of understanding people.

This is the starting principle I always emphasize to companies, founders, and executives. If you treat pricing like a discovery process of people, not only will it open opportunities on how to design your prices, but how, when and to what groups of customers you should sell.

This isn’t easy. As anyone who’s built a successful relationship with another human being –personal or professional – can attest, this takes time, dedication and focus. Many leaders are hesitant and often not excited to invest time and resources to customer discovery. But the results, when done right, can be material and high-impact.

 

Know The Unknowns Of Your Customer

I met with a fast-growing social analytic platform with millions of users globally who wanted guidance on their pricing strategy for their newest product. Early in the assessment one of the first questions I had for the CEO/co-founder is to tell me who is their customer and why.

This question seemed to surprise the CEO, especially as his focus was about pricing. We continued along this line of questioning to discover that his customer was loosely enterprise customers, but what was still unknown is why these customers were right for his product, what value these customers would gain, and what pricing, sales and marketing is needed to win these customers. It was a difficult discussion, but necessary to identify the known unknowns and how much of the surface has been scratched.

Lack of specificity, like this social analytics company faced, is problematic for several reasons. Let’s look at three.

 

  1. Pricing: Without a clear idea of who the customer is, any pricing decision becomes increasing generalized. The best pricing is designed for willingness to pay, which varies from customer-to-customer or at least at sub-segment levels. The closer you move to generalized pricing, the more generalized the offering will become; losing opportunities to capture and defend your value.
  2. Product development: It is unclear what customer problem the company is looking to solve. Lack of understanding of the customer makes prioritizing certain development difficult; requiring the company to guess what features or functions their customers value most.
  3. Use of resources: Because this company didn’t know who they are making their product for—at least initially, building a sales process and the marketing assets needed to sell to the customer is challenging. Consequently the company will expend time and resources building untargeted assets and campaigns for vaguely defined customers.

 

Pricing is a supercharged force that drives revenue, profitability and customer acquisition when it resonates with the values of the right customers. With this in mind, before asking “should the price be lower or higher”, the question entrepreneurs and business leaders should start by asking “who is my customer?” and “what do they value most in my product or service and why?”

Industry-defining companies like Apple and Amazon are able to thrive because they are focused on building a customer-centric pricing process. To get to this level, you have to value understanding your customer with as much precision as you value getting to a price point.

So what steps can you and your company take to kick off the customer discovery process? Here’s some things to get started today:

 

1. Build: Compile key hypotheses around your customer

Go beyond demographics and dig deep. If you walked past a group of people on the street (or companies at a trade show), can you identify your customers?

Customer discovery is BOTH an internal and external activity for your team. At this stage, your team is compiling hypotheses about the customer and identifying which hypotheses your team must test and validate. Leave nothing on the table.

Make this stage an inclusive exercise. Collect input from any team or individual that must engage with customers – customer success to finance, sales to marketing. Each will have a unique perspective on what makes a customer, your customer.

What type of information should you collect from your team? To start, you want to understand the descriptives – who are they? Where are they located? What do they use?

You then what to compile assumptions your team is making on behavior, specifically around how customers assess and decide on what products and features to try, use and recommend. So this can include questions like: What parts of your product will customers value most? Why? What is the benefit derived? How do they assess the benefit? Is there a monetary value to that benefit?

The goal at this stage is to build a list of ‘operating knowns’ teams and individuals have been using to make decisions about and for customers. This means the answers to the questions your team builds is actionable.

One side result of this exercise is the identifying where misalignment within the company exists and to what extent. This is not the time to make corrections (yet) or to make judgments on any team. The goal is the bring the company into alignment to make pricing, sales and marketing decisions based on proof points, not assumptions, to defend those things matter most for your company.

Here are 10 questions your team can use to kick off the discovery process. You’ll not only create an initial description of who your customers are, but you’ll also find different perceptions – subtle and direct – within your own team.

  • What brands do your customer most associate with?
  • How would your customer use your product or service?
  • How would your customer assess and decide on whether or not to use your product (or something similar)?
  • What problem(s) would your product solve for your customer? What are the benefits?
  • Would your customer pay $1 to have the problem solved with your product? Why?
  • What would prevent your customers from adopting your product?
  • If they didn’t use your product, what else would they use?
  • How do your customers connect and communicate with new brands and companies?
  • What are your customers top three favorite existing companies? Why do they love them?
  • What companies do they not support? Why not?

 

2. Test: Validate what you believe is true about your customer

 After your team begins to fill in the blanks of what describes and drives your customer, now comes the fun part – test! It’s time for you and your team to validate which elements of the customer profile are true, what is missing, and what doesn’t align with your company’s objectives.

Here are 3 low-burn ways to start testing your hypotheses about your customer:

Go wide: Online surveys

Online surveys generally attract a broader audience than a focus group would, but is extremely useful in understanding a broader group of respondents

Online surveys are easier to design and launch, but because respondents will have a shorter attention span the questions asked must be precise and relevant to your test. Asking nice-to-know questions or launching surveys or 30+ questions will not only affect response rates, but also the quality of answer you receive.

Go deep: Focus groups

Focus groups provide a great opportunity to actualize who you imagine your customers are while collecting feedback. You’ll have an opportunity to not only ask pointed and detailed questions, but also observe reactions to questions and collect nuanced feedback.

The key to success with focus groups, is inviting the right cohort of participants through the screening process. Because the focus group will include a small number of participants – usually between 5- 10 people – you need to be talking to the right people, otherwise the results will not be actionable; wasting precious time and resources. Rely on the customer definition that you and your team decided on in the “define who your customers are” exercise.

Get out there: In-field testing

In-field testing provides the opportunity to learn about your customer based on location driven research such as in front of certain retail store, events or neighborhoods..

It’s important to note that the consumer data collected from this research strategy is time intensive and actionable insight is dependent on the quality of questions asked. This research strategy is advised when you’re looking for immediate results and directional insight that informs what to test next.

 

3. Assess and Actionable Decision making

Now that your team has tested core hypotheses about your customer, it is now time to translate the insight into action.

There is, unfortunately, no set formula on what items to prioritize first, but a good place to start is to focus on high impact items that move the needle on your company’s objectives.

Remember, the purpose of this customer research is not only to better understand who is your customer, but to better serve them by building products they value, design pricing – structure and level – that align to their willingness to pay, and go to market with sales and marketing activities that defend and excite the right customers about your product.

 

Final Thoughts

The steps outlined here allow for identifying and testing one of your single most important hypothesis: Does your product have the market fit with the customers you believe it does? And if so, what is driving value for your customer?

It is never too early to start this process, whether your company is just starting out or your company has reached a level of maturity. Customer discovery and the insights that come from the process, are critical inputs to make better decisions on how you’re going to market with your pricing, sales and marketing, but also how you’re allocating and using resources for product development.

Treat the process of learning and understanding your customer as an evolutionary process, because it will continually change. Your competitive advantage will come from the systematic process you build to proactively identify shifts and make high-impact decisions for your product and company.

 

Found this article helpful?
Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left-side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us at:contact@helloadvisr.com 

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

Do Competitors Know More About Your Customers than You?

Man with binoculars

When I meet with a new company, I start by asking the same two questions: What does your company make? What makes it different?

It takes a nano-second for the eyes of the entrepreneur or executive to light up in excitement. They talk about the product idea and inspiration. Walk through the cool features and functions their teams developed (or in-development). Then comes the big finish, the x-factor – why no one else is doing it and why this will disrupt the market. The enthusiasm is infectious. When presented right, you feel like they discovered fire.

Then I start asking the “money questions” – How much are you charging? Why will customers buy and use your product? Who are your customers? The response often comes in a little slower and less assured.

It is here when the customer insight gap appear. The insights collected are insufficient to make pricing and go-to-market decisions. To compensate, competitor data plays an out-sized role to make these critical decisions. This begs the question, do competitors know more about your customers than you?

Competition is important, but…

Competition is absolutely important and should not be underestimated. Where it becomes counterintuitive is when a company believes (a) the product is market defining; (b) the product is better than competition; and (c) customers will get immense value in using the product.

If either is true, then why are competitors playing such a prominent role in pricing decisions influencing your customers?

This is not how market leaders and makers approach pricing.

Apple recently announced HomePod, their new speaker and smart assistant hub. HomePod is a direct competitor to market leader Amazon’s Echo and challenger Google’s Home.

The price for Apple’s latest hardware? $349. That’s 90% more expensive than the Echo ($180) and 170% more expensive than the Home ($129).

Apple has historically positioned its products as upscale and premium. To justify HomePod’s positioning, Apple spoke to the customer. More specifically their target customer segments. The HomePod is designed for the music lover. It’s for customers who appreciate a premium listening experience and technological innovation. It’s for customers who love to have a piece of luxury design occupy a visible space in the home.

This isn’t branding, this is customer insight in action. Apple knows the customer they want to win and is going straight for them. They do not allow competitors to dictate their prices. Instead, Apple uses price as a differentiator.

Why some companies let competitors influence the value of their innovation

I understand not every company is Apple (yet). But all companies have three key tools to help win the market: product, price and marketing communication.

Conceding price from the beginning is a risky strategy. Often price concessions dilute product differentiation and growth opportunities. It is a growth strategy many companies have trouble pivoting from. So why do companies lean on competitors to determine their prices? Here are three factors I’ve seen drive this risky strategy.

Built-in market validation (with a pinch of fear)

It’s hard enough convincing your family and friends your product is a winner and worth paying for. Harder still with total strangers. When competitors are already in the market doing even half of what you’re doing, then there is access to pricing validation. If the price started from gut feel, even better there’s “data”.

Is this “right” for the company? Most likely not. The trade-off for the perceived ease and validation of competitor pricing is avoiding the necessary customer insight work needed by growth companies. It’s accepted as ‘good enough’ to move on.

Bridging the gap of incomplete and imperfect information is the value of comparables. It is a common tool used by investors to determine company valuations. Unfortunately, the risk that often bears out is the comparable is too superficial and not accounting material differences that influence outcomes.

Companies using competitor pricing as the market price run similar risks. The most obvious are creating perceptions the product is comparable thereby diluting the innovation and inherent value. The larger risk is missing the preferences and behaviors unique to your customers.

There is also the understandable fear of ‘going it alone’. For entrepreneurs, most moments of their company’s existence is a risk. I can empathize the risk aversion. Unfortunately, that doesn’t mean the right customer insight shouldn’t be collected and used.

Not asking pricing focused questions when gathering customer insight

Too often the customer insight is insufficient. What this means is relevant pricing questions are not asked. This is dangerous. These questions are critical for three reasons.

  1. First, these questions help inform the baseline perception about your product. Asking the right questions inform gaps to address via product, marketing or sales. It’s a lot easier influencing customer behavior when you know what they think about your product.
  2. Second, the right questions inform the relative value of your product. This can include competitor alternatives, specific features, and use cases. What is important is gauging influences on customer behavior and decision-making.
  3. Finally, this process builds into the company’s research DNA commercially-minded questions. It’s a different way of communicating with customers and sometimes a harder one. The goal is not to collect opinion, but understand the behavior of your customers.

This lack of insight decreases confidence to make a decision. Too often the insight is at a population and not target cohorts. What results is some blended pricing using competitor prices and costs.

Belief prices can change in the future

Like other parts of the business, some entrepreneurs believe that prices can be updated in the future so accept prices that ‘work’ now. As some prominent entrepreneurs suggest, get it out to the market and hear what the market tells you.

Unfortunately, pricing is one of those things that is less forgiving. Even when customers are willing to give a second chance, there is often no basis to believe the company is capable of the necessary correction.

One recent example is the highly competitive food delivery space where companies such as Sprig and Munchery competed for the dining table. There is an increasing downward pressure on what e-food companies prices led by increased dependence on promotions and discounting to win customers. This leads to a danger cycle which becomes very expensive and difficult to sustain.

Technology and operational fine-tuning provide opportunities to scale. As a ceiling is reached (read: cost savings), the unit economics makes even less sense as the customer’s willingness to pay was far lower than most of these companies could afford to offer. In the case of Munchery which was losing up to $5 million in a single month and recently closed Sprig was losing up to $350k per month.

When pricing receives too little attention too late in a company’s go-to-market, corrections are difficult. In addition to a misread of customer’s willingness to pay, these food companies were conditioning price perception with each new deal or promotion.

Hindsight is 20:20, but one has to wonder how much revenue and profit growth could have been achieved with a pricing strategy built on customer insight and value.

Get the insight you need

Entrepreneurs and companies can be proactive in gathering customers insight and take greater control of their pricing destiny.

While time is a key ingredient to customer research, some quick wins are achievable. Here are 5 things that can be done today.

1. Set goals: Know what you don’t know and fill in the blanks

Before asking a single question, define what insight is needed to push the product and company forward. The questions you develop based on these goals will give more impactful insights

2. Define early customer segments, refine and repeat

Sounds obvious right? Surprisingly many companies struggle defining who their customers are. Companies need to get specific or at least who they want their customers to be.

This is iterative so don’t expect the perfect customer profile the first go around. The goal is to peel away layers to get to the heart of what makes one customer group unique from another.

3. Build behavior questions, not opinion questions

A pricing truism I often share with clients and in talks: pricing is always important. It’s more valuable to determine what other factors are important and the relative value of those factors versus price.

Like an anthropologist, you are looking for behavioral cues. Focusing on behavior questions shed light on what customers value, how decisions are made and the inputs needed to form that decision.

4. Use every customer interaction as an insight opportunity

When entrepreneurs and companies hear ‘research’ they often imagine long projects resulting in a bulky report collecting dust. Customer research shouldn’t be avoided but practiced by the entire company.

Gathering responses from even a small cohort of customers can be powerful. These interactions shed light on what is valued, friction points in adoption and refine the proposition. Don’t miss these opportunities customers give you.

5. Link insights to go-to-market actionable activities

Insight gathering may seem like an end in itself. It’s not. You’re collecting insight so that it’s actionable. That means the things you learn from and about customers should serve how prices are set and communicated.

Insights should inform how marketing and sales campaigns are designed and measured. If you’re collecting customer insight that is not actionable, then stop. The goal is to reduce the number of steps to get from question to action.

Final thoughts

Going out and learning what you don’t know about customers can be scary and intimidating. Not doing so is riskier. Don’t dilute the value of your product even before you give yourself a chance to learn about your customers.

If you have a product (or building one) that is better for customers, then embrace the difference by not giving it away. Find what makes your customers unique and what drives them.

Don’t concede your pricing power without knowing what that pricing power is. If you accept competitor prices are right for your product, then eventually your customers will too. This is a losing and unsustainable position to be in.

If you bet on a ‘change it later’ strategy and not get the insights you need, you’re effectively mortgaging your pricing power. Don’t give up before seizing the opportunity to learn and win customers, which will pay dividends in the short- and long-term.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.