Case Study: Determining Customer Willingness-to-Pay for a Climatetech SaaS Company

About the Company

Climate Tech, SaaS, pre-revenue company that helps other businesses lower their carbon emissions using A.I. and predictive analytics.

The Challenge

  • Struggled to launch beta and set a price for customer segments to strive for first revenue and early stage customer acquisition.
  • Lacked a greater understanding of customers’ willingness to pay.

What We Did

  • Collected information about the startup, their competitive landscape, and their positioning.
  • Created a series of tailored exercises for the company to work through in order to reach a better understanding of their positioning and pricing with our platform nDexio.
  • Reviewed their progress on the exercises and followed up with them by suggesting various solutions such as a freemium model with tiered pricing, promotions to encourage customer acquisition and gauge willingness to pay, special offers for beta users to incentivize participation and feedback, and many more.

Outcome

Through the engagement, our client experienced positive outcomes including: 

  • An enjoyable experience working through the nDexio platform to identify and address their pricing problem.
  • Identified the heart of what their company needed to accomplish.

Does our work align with the challenges or needs you currently face? Get in touch with the HelloAdvisr team. 

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.

What Your Product-Market Fit Test Is Missing

What is the both the earliest and best indicator that a company has a future?

Is it the napkin where a great idea is first sketched out? Is it the bank confirmation of your first paying customer?

Those are important milestones to be sure, but a powerful indicator for proof of life – and one early financial backers like to see – is evidence of your product-market fit (PMF).

The concept of PMF was first introduced by Wealthfront CEO Andy Rachleff, who wrote, “First you need to define and test your value hypothesis. And then only once proven do you move on to your growth hypothesis.” Both qualitative and quantitative indicators contribute to your assessment of how well what you want to provide will fit in the market.

One of the most common mistakes entrepreneurs make is the thinking that their PMF is the same as their commercial opportunity. Too often entrepreneurs use initial positive customer response and early adoption is equates to commercial viability. What makes these commercial assessments either misleading or incomplete is because they often do not incorporate pricing and willingness to pay. Bringing pricing into the mix, not only expands any conclusion of PMF, but stress tests core assumptions about the product, the customers and the value proposition.

 

Benefits of Pricing-Driven PMF Research

When pricing is integrated in the PMF validation process, the results are more robust. Pricing research discovers not only whether customers will adopt a product, but adds more real-world context by incorporating customers decision-making. In other words, what parts of the product has enough value that customers willing to pay?

There are two common disagreements with integrating pricing into PMF research – (1) the product is too early for customers to properly assess the value; and (2) we don’t know the right price to test against.

These are both fair arguments for why PMF research omits pricing, so let’s examine each.

Product is too early: Yes for many companies searching for PMF the product is early and may be far from the final product. Yes the core proposition – the why customers care – often does not see huge variations. At the very least, when pricing is brought into the discussion, customer feedback is often more honest and realistic; because you’re asking whether or not they’d pay for what they see.

But it’s not just whether or not they’d pay that’s insightful, but more for the reasons. This helps companies to assess whether what they’re building is worth continuing to build. It also helps companies to assess if the features that are currently under development should be built at all or whether other feature builds should be high priority. This can save not only time, but the precious resource (e.g. money) that would have been used on building something that did not materially increase value for the customer.

We don’t have a price to test: Not to be overly cheeky, but many companies often don’t have a well-defined price even at launch, but let’s assume for the moment that the company will go eventually through the necessary pricing process to design the right pricing structure and level.

It is fair to say that the price being tested at the PMF stage is not ‘right’, but what bring pricing forward is the opportunity to test some of the assumptions that the company will use to build future pricing such as competitor benchmarks or variable costs. This is also a safe environment to test assumptions on what will or will not increase willingness to pay. There is little downside, and far more upside.

Even if the company’s business model is built around a market share strategy where the objective is to gain as much market share to push out the competition, gain economies of scale to reduce costs or be first to market, this is again an opportunity to test how much pricing power the product has to gain the benefits of this strategy.

Many recent ‘success’ startups have gained considerable scale, insufficient pricing power amongst other factors raising considerable doubt as to whether these business model will ever be sustainable, let alone profitable.

If there is an opportunity to test your company’s business model assumptions in a real world context, do it. You may discover other potential revenue sources that can complement or replace revenue from the company’s original value proposition.

 

PMF for New Products Development (Pre-launch)

Do customers really want the products/services you want to sell? Are they willing to pay? These early stages of development is a great opportunity to shed light on the commercial unknowns and find direction. This means building a more structured methodology to how pricing and customer response is tested and assessed.

Like any good experiment, you’re creating hypotheses that you want to test and designing tests accordingly, rather than testing blind. This means you’re starting to explore success objectives – particularly around pricing and commercial goals – for the product. You’re asking early on what drives value in the product. What are assumptions made by the team, and what is more reflective of what customers value. Finally you’re looking identify your customers, who value the product in its current and future forms.

The goal at this stage isn’t to find absolutes but greater direction to make more informed decisions, manage the consequences of future product (read: development) and commercial (e.g.  pricing, business model) decisions. This should be an on-going and iterative process, and not a one-time event. Those that stop this part of the iteration and testing process is where decisions are increasingly made blind.

 

PMF for Those Already in the Market (12 Months or Less)

If you have newly launched but still have not found the path to significant traction, don’t give up. Now is the time to do the research you did not have the opportunity to do earlier. It’s one step backward, but you’ll move 10 steps forward.

This research is focused on identifying your benefits and value drivers – the reason why customers will use your product, potential friction points, who these customers are and what these value drivers worth (or not). This doesn’t have to be a global research study, but it needs to be expansive enough to give you the directional guidance to make decisions on your price, your product, and your marketing. You read about some research methods we’ve recommended for your research.

 

PMF for Those Already in the Market (More than 1 Year)

A year or more on the market is a great accomplishment. Although estimates vary greatly, the SBA estimated that 3 out 10 business fail within 2 years, so you’ve made considerable positive strides overcoming important hurdles to get to today.

You have probably gained some traction as customers get comfortable with how the product works and feel positive about your company. After your first anniversary, turn your attention to running quick pricing sprints.

Test the strengths and weaknesses of your pricing by assessing why customers use your product as well as how much more they’re willing to pay for it. Discover that’s changed in what you knew before and what is actually happening today.

Investigate alternative strategies to monetize your product, such as changing the pricing structure, differentiating your price and offer to different customer segments, or how you handle payment arrangements.

This research has to be well structured, planned, and scheduled for periodic reviews, but the results can be extremely valuable and can set your company up with more strategic and tactical opportunities to win customers and grow.

 

Final Thoughts

There’s an old saying that nothing is really possible until it’s practical. The halls of invention are littered with the relics of great ideas that went nowhere. PMF is about understanding how your customers get through the day in the real world and what they consider valuable in a rapidly changing world.

You may only have a short window of monetization before your basic value proposition has to evolve and offer them something more relevant. PMF is really a business survival tool that you should master and keep close at hand as your business matures.

 

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.