Insights from Pricing Consultants: The Top 10 Market Research Mistakes
As professionals in the business world, we understand the significance of comprehending our customers' needs, desires, decision-making processes, and preferences, including the valuable insights provided by pricing consultants. The better we grasp these aspects, the more effectively we can cater to their requirements, ultimately enhancing our chances of having them as clients and earning their loyalty. While this understanding is well known, customer insights and intelligence levels vary significantly among companies. Some companies rely solely on instinct, while others prioritize low prices to such an extent that they fail to adequately serve their customers. However, a specific group recognizes the inadequacy of guesswork and gut feelings in today's competitive and rapidly evolving marketplace. This group acknowledges the importance of implementing a data-driven process to gather information about their customers and has started to design a customer insight process. Yet, just having a process is not enough. Therefore, this article focuses on that specific group. This article, guided by pricing consultants, examines the most prevalent mistakes made by companies in their customer insight processes, emphasizing the necessity and importance of a well-designed approach, as is the willingness-to-pay research developed by Sjofors & Partners.
One: Simplification
When customers decide to buy from you or not, they consider various factors such as their perception of your company, competitors, convenience, brand image, willingness to pay, input from influencers, offers and promotions, and many other aspects. All of us often make these decisions without consciously thinking about all these factors, but they still influence our choices.
Despite the complexity of these buying decisions, there have been numerous attempts to simplify the process of understanding customer insights. Many of us have encountered short and simple surveys, whether online, via mail, given at the point of purchase, or through quick phone calls. These brief questionnaires oversimplify the decision-making processes, evaluations, and judgments that customers make regarding your products and services and those of your competitors. The resources companies invest in these simplistic projects are often wasted and do little, if anything, to improve how you can better serve your customers.
Two: Isolation
The mistake of isolation happens when market research surveys ignore the significant impact of pricing factors. It is crucial to evaluate customers' perception of value in relation to their willingness to pay, what they consider worth paying for, how well your pricing structures and levels align with their value expectations, and what competitors offer at lower or higher prices. By isolating price from value and perception, a biased and incomplete understanding of buying decision behavior, customer satisfaction, loyalty, and willingness to continue purchasing from your company is presented.
Three: Homogenization/Uniformity
Another undeniable fact is that the market landscape needs to be understood within the framework of market segmentation. Segmentation profoundly influences the process in two significant ways.
Firstly, the various market segments you cater to will differ in their perception and appreciation of your products and services. Discovering an effective segmentation model and identifying significant variables is a skill in itself. In certain cases, the crucial variables might be personal, such as age, gender, weight, socio-economic status, and demographic indicators. In other cases, they might be business-related, such as industry, job title, company age or size, and so on. Furthermore, time-based variables, like distinguishing between morning and afternoon customers, different seasons, or weekdays versus weekends, can also play a role. An immense value gets lost when data is homogenized and fails to highlight these important distinctions.
The second impact can be even more profound. Different market segments may make their purchasing decisions and experience satisfaction or dissatisfaction for entirely different reasons. However, it is precisely these differences and reasons that make the data actionable and meaningful.
Four: Evaporation
The mistake of evaporation arises when market research data is collected, analyzed, disseminated, read, and subsequently disregarded. Evaporation takes place when the gathered information lacks actionability. When data evaporates, the findings may offer informative insights but fail to inspire meaningful enhancements, alterations, or advancements. Among all the errors, evaporation is particularly disheartening as it wastes significant opportunities for executives to drive substantial improvements in their business outcomes.
Five: Competition
The error of competition is a highly significant one. It occurs when a survey solely focuses on the relationship between a company and its existing customers, disregarding the alternatives that customers have and leading to a distorted assessment of the company's level of risk. To avoid the competition error, it is important to survey a broader population beyond just your customers. This includes gathering feedback from prospects, contacts who chose a different business, and individuals who may not have had any previous dealings with you but match the target audience profile. Their perspectives on your company, value propositions, and those of your competitors create a context that should be considered when interpreting your own results.
Only by understanding the detailed levels of willingness to pay among your target audience can you effectively strategize and strive for increased market share.
Six: Amateur
The availability of affordable survey software has lured even the most skeptical executives into believing they can design their own surveys and achieve effectiveness. However, the truth is that designing an effective survey is a challenging task if you want to generate consistent and actionable information. Even the most intelligent and experienced managers and executives can make the mistakes outlined in this document. Developing a valuable survey requires more than just intelligence and user-friendly software; it demands experience and expertise. Designing a useful willingness to pay research survey is both a science and an art.
Moreover, many of the free survey software services available lack the advanced and complex features required to delve deeper into the minds of the marketplace. They are unable to analyze how customers and non-customers weigh different factors, functions, services, satisfaction, and price when comparing various vendors and alternatives. Even if the software possessed the necessary functions, the likelihood of an amateur effectively configuring the question sets and accurately interpreting the results is slim.
Seven: Confidence
The error of Confidence arises when the number of survey participants falls short of reaching the threshold of statistical significance. When conclusions are based on an insufficient number of respondents, they become highly questionable and often inaccurate. To obtain valuable insights, it is necessary to gather statistically valid data from both customers and non-customers, including former customers and individuals who may not be aware of your company but match the buyer profile. Only then can a market research customer study deliver its true worth. And to achieve this, there is no substitute for the diligent effort of obtaining an adequate number of survey participants.
Eight: Transparency
The mistake of Transparency occurs when respondents are made aware of the identity of the survey sponsor. Extensive experience and careful experimentation have demonstrated that customers respond differently when they are aware of the sponsor's identity. This introduces a significant source of error and bias in most willingness-to-pay research surveys. When respondents are aware of the survey sponsor's identity, they:
Bias their satisfaction and value levels upwards as a gesture of "courtesy" to the sponsor.
Bias their answers towards what they believe the company wants to hear.
Understate the amounts they are willing to pay in an effort to receive a lower price.
Misrepresent the significance of individual elements of your offering, categorizing them as either "premium," "nice-to-have," or "absolutely essential.”
Therefore, maintaining transparency about the survey sponsor's identity can compromise the accuracy and reliability of the survey results.
Nine: Commoditization
In a market where products and/or services are perceived to be highly similar, buyers primarily base their purchase decisions on price. The mistake of Commoditization arises during the survey design process when specific differentiating factors, which the company believes set it apart in the marketplace, are not adequately tested. Commoditization undermines the effectiveness of the willingness to pay research survey when it fails to evaluate the extent to which the company's unique value drivers truly influence customer choices, satisfaction, and loyalty.
Ten: Internal vs. External
Every company holds perceptions regarding the factors that drive its position in the marketplace. These factors include what motivates customers to choose their company over competitors, why some customers opt for competitors instead, and what leads to customer satisfaction and retention. However, these factors are often undocumented and not widely shared within the company. They remain as a subjective "gut feel" that varies among different groups within the organization, such as executives, marketing, sales, product development, and customer support. Each group may possess a different perception, and it's possible that all of them are somewhat inaccurate. These perceptions are often lacking in detail, ranking, and qualification.
The existence of perception gaps, both between the company and the marketplace and among different groups within the company, hinders the organization's effectiveness. A company with significant gaps in perception is likely to fall short in delivering the superior customer experience necessary to differentiate itself from competitors and emerge as a true market leader.
Summary
The decision landscape represents the terrain that buyers must navigate when deciding whether to purchase a product or service. For B2B sales, it encompasses the approval and influence structures surrounding the buying decision within companies. For B2C sales, it comprises the various factors that influence individuals' purchasing choices, including vendor selection, pricing considerations, product preferences, and brand loyalty. Pricing consultants play a crucial role in understanding and optimizing the pricing aspect of the decision landscape. Willingness-to-pay research conducted by pricing consultants serves as an invaluable tool to understand and map the decision landscape, enabling businesses to plan actions that drive their success.
Unfortunately, many companies make the mistake of developing products or defining services based on internal factors rather than considering what customers are truly willing to pay for. As a result, they experience challenges such as lengthy sales cycles, decreased repeat business, diminished profitability, and limited growth.
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