Will Galaxy 4 fail because they based it on customer research?

I don’t know what is going to happen with Samsung Galaxy 4 sales and I am not going to make a prediction. One thing that is clear from the media reports is that initial excitement quickly gave way to a feeling of let down. Unlike Apple that says they don’t do customer research and shares no details about their understanding of what the customer needs, Samsung gladly shared their design process for S4

the phone’s software development was driven by four key requirements that Samsung research found consumers most desired:

  1. The phone had to be fun,
  2. encourage closer relationships,
  3. offer convenience and
  4. help improve health and wellness.

This is some very specific details based on whatever customer research they conducted. And they fed that input into their design process to deliver what they believe to be the right phone for these jobs customers are hiring a phone for.

Compare this against the famous Steve Jobs statement about not asking customers what they want and designing the product in secrecy.

The question is what will the bloggers and social media say if S4 turns out to be a bust? Will they once again extol Jobs school of product innovation and blame S4’s failure on taking the path of methodical customer research and developing products based on customer needs?

Again it is hard for me to say the outcome of S4 but if they were to fail then it is not because they designed it based on what customers desired but because of their interpretation of how to fulfill their desire.

For fun needs Samsung added a whole bunch of camera features like Sound and Shot for amateur news reporting, Beauty Face etc.

For relationships needs they added text translation to chats,emails and texts.

For convenience they delivered a set of gesture features to control phone without touching.

Finally for health they added features mirroring those of FitBit and other devices popular among quantified self movement.

If you are going to question Samsung’s approach to product development it is the way they chose to fulfill customer needs with these features that you should question. We hope they did not ask customers directly what will be more fun or convenient because that would be the equivalent of asking customers if faster horses will be more fun.

It is quite possible they did no follow-on research to determine if Samsung’s interpretation of desires matches that of customers’. It is also possible they first decided on these features and later fitted them on to customer needs.

Any of these reasons for sure will result in product failure that is not due to asking customers what is important but how it was asked and how it was interpreted.

So if S4 indeed fails in the market place do not rush to accept what you believe to be Apple’s method of product development and give up on customer research. Instead recognize that customer research is lot more complicated than finding what they desire or asking what will fulfill those desires. It is a multi-step approach that starts with customer desires and testing repeatedly with to deliver the right offering that serves customer needs better than any other alternative available to them.

How do you do product development.

Can you add my one question to your survey?

No sooner you let it be known, mostly inadvertently, that you are about to send out a survey to customers than starts incessant requests (and commands) from your co-workers (and bosses) to add just one more question to it. Just one more question they have been dying to find the answer for but have not gotten around to do a survey or anything else to find the answer for.

Just one question right? What harm can it do? Sure you are not opening the floodgates and adding everyone’s question, just one question to satisfy the HiPPO?

May be I am unfair to all our colleagues. It is possible it is not them asking to add one more question, it is usually us who is tempted to add just one more question to the survey we are about to send out. If survey takers are already answering a few it can’t be that bad for them to answer one more?

The answer is yes of course it can be really bad. Resist any arm-twisting, bribing and your own temptation to add that one extra question to a carefully constructed survey. That is I am assuming you did carefully construct the survey, if not sure add them all, the answers are meaningless and in-actionable anyways.

To define what carefully constructed survey means we need to ask, “What decision are you trying to make with the data you will collect?”.

survey-processIf you do not have decisions to make, if you won’t do anything different based on the data collected or if you are committed to do whatever you are doing now and only collecting data to satisfy the itch then you are doing it absolutely wrong. And in that case yes please add that extra question from your boss for some brownie points.

So you do have decisions to make and made sure the data you seek is not available through any other channels. Then you need to develop a few hypotheses about the decision. You do that by doing the background exploratory research including customer one-on-one interviews, social media search analysis and if possible focus groups. Yes we are actually paid to make better hypothesis so you should take this step seriously.

For example your decision is how to price a software offering and your hypotheses is about value perception of certain key features and consumption models.

Once you develop a minimal set of well defined hypotheses to test, you design the survey to collect data to test those hypotheses.  Every question in your survey must serve to test one or more of the hypotheses. On the flip side you may not be able to test all your hypotheses in one survey and that is okay. But if there is a question that does not serve to test any of the hypotheses then it does not belong in that survey.Slide2

The last step is deciding the relevant target mailing list you want to send this survey to. After all there is no point is asking the right questions to wrong people.

Now you can see what adding that one extra question from your colleague does to your survey. It did not come from your decision process, does not help with your hypotheses, and most likely not relevant to the sample set you are using.

One right price is better than three wrong prices: SurveyGizmo Simplifies Pricing

This post is my interview with CEO of SurveyGizmo, Christian Vanek on their pricing strategy.

A few weeks back I wrote about the continuing changes to SurveyGizmo pricing. It turned out they have been A/B testing their pricing for a while and I had slipped through the crack, finding both the offers. Last week I sat down (over phone) with SurveyGizmo CEO, Christian Vanek and their web marketing lead Kipp Chambers for a conversation on their new pricing.  Christian happily shared with me  the genesis and details of this simplified pricing.

The details are sure to add new dimension to the thinking of most startups that see pricing as simple freemium model or do it as tactical afterthought. Their analytical process, understanding of customer mix and their willingness to go against the conventional wisdom are exceptional traits that need to be commended.

Pricing is lot more than an eye-candy pricing page!

What was their pricing before the change?

Take a look at their previous pricing page. Their pricing options and the pricing page design look not much different from numerous other webapps out there. In fact there are wordpress templates available to show this classic three column design with the “suggested version” highlighted.

One glaring difference is, while most webapps include their free version as one of the three presented, SurveyGizmo showed their free version as a footnote.
Otherwise this is nothing more than a  instance of what Hal Varian described as Goldilocks pricing.

What is the change?

Gone are the multiple editions and the pricing page eye candy to nudge customers to a specific edition. There is just one edition with all the features including the advanced features that used to be available only in the higher priced versions. Most importantly, they used to limit the number of responses per month and now they eliminated that limit as well.

In the past they had a cheaper $19 plan even though it was not prominently featured in the pricing page. Now that is gone along with the $159 Enterprise Plan that was prominently featured and highlighted in the middle of the pricing page.

After this pruning, all is left is just one version – no name  for it (like the new iPad)- offered at $50 for the first user and a flat fee of $20 per additional user.
Another point to note is there is no non-linear pricing built into the price list. Whether it is 100 additional user of 1 additional user, the price is the same, $20 per additional user.

To discuss this change, the drivers behind it and how they arrived at it, I talked to SurveyGizmo’s Christian Vanek, their CEO, and Kipp Chambers. Here is what they had to say.

Why are you open to sharing this information? Isn’t pricing strategy meant to add to your competitive advantage?

“We have a company policy of no secrets”, said Vanek. He stayed true to this policy even when I later asked him about SurveyGizmo’s future product roadmap.  “Regarding SurveyGizmo’s pricing there is nothing really to be protective about. As soon as  the pricing page went up our competitors likely saw it. Or they will know when your article goes up. Even before this, people were copying the pricing plans and the pricing page down to the name of our plans and their feature set. Once they had comparable plans they were competing on price”. Vanek adds he could either spend all his energy protecting ideas or spend his energy on better execution and coming up with newer ideas. The choice is clear to him.

What are the drivers for this major pricing change?

We had our $19 plan, the $49 plan and the $159 plan. We found several key things from our analysis of our customers.

  1. Very people were opting for the $19 plan. Some of those who chose it for price realized they did not have all the features they needed and were calling us about that. In most cases we ended up enabling the additional features for them. We are not going to tell our customer, ‘you need to pay additional just for that feature’. Some upgraded to higher priced plan just for a brief period to use the advanced features and downgraded right away when their job was done.
  2. Those who picked the $159 plan were using only 10% of all possible features they get with it. We were taking lot more money from our customers who were not taking full advantage of what they were paying for.
  3. What if a customer wants only one of the feature offered in higher priced version and that is the only one they want? Why should they pay more just for that? We tried for a time some kind of a la carte pricing but it was not the best of experience for our customers.
  4. Surprisingly, customer satisfaction was low among those who chose the lowest priced plan and high among those who chose the higher priced plans. You could argue this is because their purchasing decision itself may have something to do with satisfaction rating.

Considering all these we thought, there is really only plan that served customer needs and presenting three options is likely aggravating customer choice by adding to their cognitive costs. So we decided to test this hypothesis.

This is so different from what every other webapp startup is doing.

Presenting  three plans, any three plans, at different price points and hoping customer will pick the one they want is shotgun approach to customer segmentation. It came apparent to us to retire the shotgun and get sniper”. (Vanek calls this his Call of Duty metaphor, “almost any business lesson can be learned from Call of Duty”, and adds The Lord of The Rings after my prompting*. )

“I think we are seeing now the end of the freemium model, signing up for free and then trying to up-sell. Our value is in providing both a great product and great service to go with it to customers who need and value our product”.

So you are giving up those customers who are willing to pay $20?

These customers were never ours to begin with. Customers who want free survey or want to pay $10 or $20 a month have always been SurveyMonkey’s customers. We are okay with that. If a customer is happy with a competitor we are okay with that. These were the customers who anyway ended up getting the features from higher priced plan because we did not want to say to them, that is extra.

What about profits lost by eliminating $159 plan?

“This was our fear as well and we discussed this internally. It would seem silly to give up on the higher priced plan. In essence you have to bring in 3 new customers at $50 level for every $159 customer we are giving up by eliminating this plan. We asked internally, can we do this? Happy to say we are doing very well after we moved to single price plan.”

“When we discuss our features with customers showing them how we compare feature for feature with competitors and then show them the price, they ask, ‘okay, why such a low price? What is the catch?’. There is no catch. We don’t have to overcharge for the product.”

About the change process?

“We did lots of A/B testing. We found that customer decision was easier with just one pricing option. In fact when we presented the simplified plan in split testing  that charged $50 for first user and  $20 for each additional user we found customers were signing up more than one user than they did with three pricing options.  We are serving marketing research field, we should be doing our homework before such change. Only after a lengthy testing process and data analysis we decided to go with this change.”

It is acceptable for a pricing geek like myself to say cognitive cost, how is that you are thinking about it?

For this Vanek seems to believe this is common sense. A customer who has to weigh multiple plans, the features it has and the price points suffers significant cognitive cost. “We work with lots of researchers who work on cognitive research and we understand the cost to customer from choice.”

Final words?

By eliminating the three plans and going to a single plan we have narrowed the field. We are targeting only those customers who want and value the advanced features.

*Talking of The Lord of The Rings, Vanek says his super power is he has the voice of Saruman.

What would you do? A Business Case Study

Your product takes 8 years to build. You do have your pipeline full so you produce units to sell every year. But it takes 8 years from the very first step to shipping it. You are innovating, introducing changes and features that fit the times and customer segments. But any innovation or changes you want to introduce will take 8 years to hit the market.

Your customers are changing and the macroeconomy has its effect on customer buying behavior. The core customer group you used to sell has no need for your product. The newer crop is not interested because their taste, needs, lifestyle, business process etc are changing. In fact, over the past 30 years your addressable market reduced from 40% of  total market to just 23%. Your market share comes from this addressable market, you are not the only player in the same product category and there is excess supply as well.

Those customers who continue to buy your product prefer the cheaper version of the product,  the version that isn’t as profitable to you as your premium version.

You are seeing competition from alternatives. While these are priced at 75% premium over your product, these last 6 years while your product lasts just 1 year.

Your product is not without its value. Most of the value comes from non-utilitarian reasons while the competition is mainly competing on convenience. You have not done much in communicating this value differentiation to your customers.

Competition has different and more elaborate Go-To-Marketing strategy. They are available in more places while your channels are disjointed and limited.

Competition also has advantages on marketing while you hardly have any marketing.

How would you fix this? Where would you start first?

Fix marketing (messaging etc)?
Fix Go-To-Marketing along with Segmentation strategy?
Fix Product Strategy?
Fix Product Development?
Fix Pricing?
Or instead of fixing, just fold?

Think this is an unrealistic case? See here.

Gurus Selling Old Knowledge Under New Brands

This is a long quote from a 1967 article published in Journal of Industrial Economics. This paper was written as a response to Galbraith’s theory of Consumer Sovereignty.

The sensible manufacturer works with the environment, not against it. He tries to satisfy desires, latent and patent, the consumer already has; it is much cheaper than creating new ones.

First, he tries to identify these desires. To do this he now has all the aids of marketing research. If he only researches into which detergent the consumer considers to wash cleanest, he may miss the fact that the consumer now also wants her detergent to be pleasantly perfumed.

That is why so many of the new products even of the biggest firms fail miserably in test market. It is rarely because they are poor products technically. It is because there is something in their mix of qualities that fails to appeal to the consumer.

Once the manufacturer has found out what he thinks the public wants, he has to embody it in a product.

When the manufacturer does find an answer at a reasonable price, he still has to sell it to the public. He may think the answer will work; he may feel the price to be reasonable. He does not know whether the public will see it as he does.

If you go further back you most likely will find yet another article saying the same thing in more arcane language.

Fast forward to present day and you have exactly the same concepts stated above packaged in so many different ways. Every Guru has a name for it, they want us to believe none of the existing methods work. They brand these as their own, e.g., “Trade-off“, “Customer Development”, “Freemium”, etc.

Unfortunately, when the audience suspends its skepticism or if the Gurus are popular enough, their re-packaged ideas take roots as original thesis. Worse, the original ideas these new brands represent are cast aside as anachronisms.

There really is nothing new in marketing. Only new catch-phrases that fit the language of the time.

When Customers Come Calling

Not all of us get 3000 customers come calling (may be they do and we do not recognize it).

Domenico Martini is a truck driver in Italy, he used to deliver food for supermarkets when new customers came calling – about 3000 of them:

Each with a set of special requests

  1. Many wanted a discount on what traditional couriers charged;
  2. Others wanted meals to arrive in time for lunch.
  3. Some have asked him to linger at the delivery site to gather intelligence on their children’s new lives.
  4. Others demanded his cellphone number.

Listening to the different needs enabled Martino  to design and deliver them a solution at a price they are willing to pay.