The Rational and Not So Irrational Reasons Why Customers Buy

Why a customer buys a product has exactly two sets of reasons:

  1. Rational
  2. Emotional (I would have labeled it irrational, but a reason however irrational it may sound to one is perfectly rational from the buyer’s perspective)

This is just a classification so it is trivially true even though this reads like a generalization. Any reason can be tagged as either rational or emotions and I will expand on these in a moment. This is true for consumer products or B2B buying processes. What varies is  share of each component in the overall buying decision.

The Rational reasons are rooted in “needs”, based on objective evaluation of product attributes, its price, and comparing it to all other alternatives. We can write the Rational reasons to be driven by two components,

  1. Price
  2. Functional attributes (utilitarian benefits)

Emotional reasons are rooted in “wants”, they are the hedonistic reasons. These are all reasons other than those directly driven by the product’s functionality even if the reason is rooted in a product attribute. For instance, a customer buying a 1.5 Tonne truck may also have emotional reasons for rooted in the size of the truck. The emotional reasons are driven by

  1. Stories we tell ourselves (Brand, feeling, Price level etc)
  2. Stories we think others will tell about us (Brand, conspicuous consumption, “nobody gets fired for hiring IBM”)
  3. The Unknown ( this is the unquantifiable part, examples include habit, apathy and nepotism)

What does this classification mean to you as a marketer, product manager or entrepreneur?

It is important for you know all the reasons a customer is buying your product. The reasons vary across:

  1. Product Categories
  2. Purchase Occasions
  3. Customer Segments

You cannot simply copy a template that worked for someone and apply it for your situation, especially when you read a compelling narratives about certain brands. Zappos may have did it, that does not mean you could or should.

Do not confuse product attributes with the reasons why a customer is buying. A customer buying $250 Nimbus 2000 at Harry Potter attraction at Universal Florida is not buying it to fly or sweep.

You cannot focus on any one aspect thinking that alone drives your customer decision. For customers it is always a trade-off and the trade-off as said before isn’t static even for the same customer. You may buy a $12 bottle of wine for your own consumption but when you buy wine as a gift you are thinking about “what stories the host will say about you”.

You cannot also take the shortcut of giving more of everything in the name of delighting everyone.  If you did then you either price it so high that it is unattractive to most or price it too low that you are not making profit from your value-add.

You need to find out what is relevant to the segments you are targeting and deliver them a version at a price they are willing to pay for.

That is marketing strategy!

More of the Same or Some of New – Product Upgrade Strategy

In just over an year since the release of iPhone 3GS, Apple released  iPhone 4. Many of the iPhone 3GS customers are more than happy to pay another $199 to upgrade to  iPhone 4. In fact, Apple’s track record with iPod and iPhone has been to release new versions every year. Be it iPod or iPhone upgrades, each has become a bestseller. It is not all due to new sales, a good portion of the purchases are by owners of previous versions.   Customers upgrade to newer iPod and iPhones even when their current products have life left in them.

So what makes the  customer  to mentally write-off their past purchase even though it has not reached its end of life and open their wallet to upgrades?

The answer comes from product upgrade research published by Erica Mina Okada in the Journal of Marketing , 2006 (Upgrades and New Purchases ).

If the customer perceives the upgraded version as dissimilar to the version they own then they are more likely to upgrade despite life left in old product they already own.

For a marketer to convince existing customers to upgrade, they must position the upgraded version as a dissimilar product. For this positioning to be credible the upgrade needs to meet certain key criteria:

  1. The upgrade must have new features – not just enhancements of existing features. Customers tend to focus on features that are new and dissimilar over mere enhancements.
  2. Customers must be familiar with these features before you introduced them – if not then they do not know how to value them and hence are less willing to upgrade.
  3. The features must have high perceived value.

For example* in case of iPhone 4, it has front facing camera and  gyroscope that are new and it has improved screen and speed which are enhancements. The presence of new attributes that customers are familiar with make it a dissimilar product.  iPhone 3GS customers are more likely to perceive iPhone 4 as a dissimilar product from iPhone 3GS.

Apple’s iPod/iPhone upgrade success may be seen as part of Apple aura but the same cannot be said for its other products like iMac. iMac market share has not grown significantly and is nowhere near the explosive growth of iPod and iPhone. Notably, iMac line has not seen major upgrade since the dome shaped version.  Current iMac customers do not rush out to upgrade to the yearly new versions, illustrating the point that iMac upgrades are not seen as dissimilar to previous versions.

Apple has the resources, people and process to  introduce upgrades  year after year and have them perceived as dissimilar products. But  it is not possible for the rest of us.  One tactic for that situation is to position the upgrade as dissimilar product by magnifying the enhancements of select attributes. For example,  redesigned keyboard on Kindle upgrade.

That is a short term tactic, but for you as a product manager what should be your product strategy that will enable you maximize the uptake of your upgrades?

  1. Resist the temptation to deliver a fully loaded version. Find what is relevant to the segments you are targeting and deliver the Goldilocks version.
  2. Repeat this process for each upgrade, i.e., release a Golidlocks* version at each iteration not just for the first version.
  3. Do not attempt to delight the customer – there is no need to deliver more than what your customers are asking for. This is illustrated in the Value Step function I wrote about.
  4. When planning your next iteration choose features that are new over improving existing features. This may go against the iterative development philosophy of continuous improvement. But when constrained for time and resources, choose new over enhancements
  5. Proudly copy – new to your product does not mean unique. Select those features that are present in your competitor products and values highly by customers.

What is your product strategy?

Note1:  iPhone 4 is used only as illustration and not proof. A formal proof was provided by Okada in her work. When Apple releases iPad 2.0 look for new features and being positioned as dissimilar.

Note2: Goldilocks version is labeled as MVP in the Lean Startup community.