Beyond Benchmarks: Navigating Innovation, Pricing and Customer Value
23 December, 2023The problem with mimicking benchmarks is that it inevitably leads to a uniformity that hinders differentiation. Currently, there is an abundance of tech-heavy products lacking substance beyond their technological brilliance, which is regrettable. Continuously introducing innovative features is undoubtedly valuable, yet the true essence of your product extends beyond the realm of cutting-edge technology. Innovation involves more than just replicating benchmarks, it goes beyond adopting the latest technological trends merely for the sake of maintaining relevance.
Some of these products are more successful than others, for various reasons. From my experience, products that have a well-defined consumer decision model behind them tend to be more memorable, competitive, and ultimately more successful. Before you can make good pricing decisions, you need to understand how your consumers make purchasing decisions. What prompts them to consider a Tesla over a McLaren? Did their previous car break down or do they just think the Tesla is cool? Do they care whether it's electric or not? There must be a reason why they're considering a Tesla and not a McLaren.
Once you understand how your customers decide to discover and buy your products, you can establish a consumer decision model. This model is like a formula that helps predict how much people will want your product based on factors like your price, your competitor's price, and whether your product is available.
Ultimately, the model guides you in pricing your product to achieve desired outcomes. Of course, this process comes with experimenting, measuring, testing, implementing, and optimising. It's acceptable not to achieve perfection initially, but having a strategy and a process aligns your team and builds the foundation for future revenue.
A pricing model also helps you figure out what your next move should be, or which product features you need to rethink. Say you have this idea of a new feature powered by AI. Your team is excited at the idea of working on such an advanced feature. But does the feature create value for your customers, and especially for the paying customers? Or does the choice to focus on this particular feature stem from the genuine enthusiasm within your team?
If you're like me, and take a particular interest in understanding how technology impacts the human actors involved in a service encounter, i.e. service providers and customers, then consider the following statement:
"Customers seek to engage with service brands and interact with service organisations that enable superior experiences". (1)
This conceptual framework lacks genuine insights into customer behaviour. Have you ever heard of any person "seeking to engage with service brands?" Or "seeking to interact with service organisation enabling superior experience?". I haven't. Not one. But I've heard of people wanting to get X done, and looking for ways to do it. People typically seek solutions to specific needs rather than actively engaging with service brands.
When it comes to innovating, few companies have a long-term strategy. Many decisions are based on intuition, which makes it difficult to measure the results of any experiment. In the case of tech products, lots of companies choose to specialise their product even more by building new features. But is there a need for such a feature? Will the customers use it? And most importantly – are they willing to pay for it?
Companies must think strategically about the design of the service encounter. So, framing your service or product to be the solution to the X problem your customers need to solve, is the key. Companies figuring out the ideal role combinations across distinct service encounters along the customer journey are likely to gain a competitive advantage. By understanding the customer's purchasing decisions, you will be able to optimise your pricing algorithm and test it. The shortcut is rarely the answer – offering that same service as your competition or launching that new feature because it's cool is not necessarily going to lead to a competitive advantage. Instead, think of the following question: is there a demand for the new service/product you're trying to scale? And are your customers willing to pay for it?
If the answer is yes, then get ready to test your hypothesis in a controlled experiment.
Oh how right was Fukuyama: "The end of history will be a very sad time. The struggle for recognition, the willingness to risk one's life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination, and idealism, will be replaced by economic calculation, the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands." (2)
References
(1) Lemon, K.N. and Verhoef, P.C. (2016), “Understanding customer experience throughout the customer journey”, Journal of Marketing, Vol. 80 No. 6, pp. 69-96.
(2) Fukuyama, F. (1989). "The End of History?", The National Interest, No. 16, pp. 3–18.
Some of these products are more successful than others, for various reasons. From my experience, products that have a well-defined consumer decision model behind them tend to be more memorable, competitive, and ultimately more successful. Before you can make good pricing decisions, you need to understand how your consumers make purchasing decisions. What prompts them to consider a Tesla over a McLaren? Did their previous car break down or do they just think the Tesla is cool? Do they care whether it's electric or not? There must be a reason why they're considering a Tesla and not a McLaren.
Once you understand how your customers decide to discover and buy your products, you can establish a consumer decision model. This model is like a formula that helps predict how much people will want your product based on factors like your price, your competitor's price, and whether your product is available.
Ultimately, the model guides you in pricing your product to achieve desired outcomes. Of course, this process comes with experimenting, measuring, testing, implementing, and optimising. It's acceptable not to achieve perfection initially, but having a strategy and a process aligns your team and builds the foundation for future revenue.
A pricing model also helps you figure out what your next move should be, or which product features you need to rethink. Say you have this idea of a new feature powered by AI. Your team is excited at the idea of working on such an advanced feature. But does the feature create value for your customers, and especially for the paying customers? Or does the choice to focus on this particular feature stem from the genuine enthusiasm within your team?
If you're like me, and take a particular interest in understanding how technology impacts the human actors involved in a service encounter, i.e. service providers and customers, then consider the following statement:
"Customers seek to engage with service brands and interact with service organisations that enable superior experiences". (1)
This conceptual framework lacks genuine insights into customer behaviour. Have you ever heard of any person "seeking to engage with service brands?" Or "seeking to interact with service organisation enabling superior experience?". I haven't. Not one. But I've heard of people wanting to get X done, and looking for ways to do it. People typically seek solutions to specific needs rather than actively engaging with service brands.
When it comes to innovating, few companies have a long-term strategy. Many decisions are based on intuition, which makes it difficult to measure the results of any experiment. In the case of tech products, lots of companies choose to specialise their product even more by building new features. But is there a need for such a feature? Will the customers use it? And most importantly – are they willing to pay for it?
Companies must think strategically about the design of the service encounter. So, framing your service or product to be the solution to the X problem your customers need to solve, is the key. Companies figuring out the ideal role combinations across distinct service encounters along the customer journey are likely to gain a competitive advantage. By understanding the customer's purchasing decisions, you will be able to optimise your pricing algorithm and test it. The shortcut is rarely the answer – offering that same service as your competition or launching that new feature because it's cool is not necessarily going to lead to a competitive advantage. Instead, think of the following question: is there a demand for the new service/product you're trying to scale? And are your customers willing to pay for it?
If the answer is yes, then get ready to test your hypothesis in a controlled experiment.
Oh how right was Fukuyama: "The end of history will be a very sad time. The struggle for recognition, the willingness to risk one's life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination, and idealism, will be replaced by economic calculation, the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands." (2)
References
(1) Lemon, K.N. and Verhoef, P.C. (2016), “Understanding customer experience throughout the customer journey”, Journal of Marketing, Vol. 80 No. 6, pp. 69-96.
(2) Fukuyama, F. (1989). "The End of History?", The National Interest, No. 16, pp. 3–18.