Category: Digital Strategy

Book review: “The Messy Middle” by Scott Belsky

marcabraham1 Comment

 

I’m sure a lot of us have common misconceptions about successful entrepreneurs and their companies. It’s easy to look at people who’ve ‘made it’ and think that their journey has been all plain sailing. Scott Belsky is such an entrepreneur, having founded Behance, a platform for creative professionals to show off their work, which eventually got acquired by Adobe. In “The Messy Middle”, Belsky eradicates any illusions about the process of creating – whether it’s a business or a product – being painless. He writes about the different stages of a startup lifecycle: the start, the middle and the finish. Belsky makes the point that “it’s not about the start and finish, it’s about the journey in between.”

 

Fig. 1 – Scott Belsky, Navigating The Messy Middle – Taken from: https://medium.com/positiveslope/navigating-the-messy-middle-7ca6fff11966

 

At the start, there’s “pure joy” to begin with. That is before reality kicks in and things hit bottom. Belsky describes the finish as “final mile of journey and the recovery time between one project and the next”, the point where you can allow yourself to take a break and make a change. I, however, specifically bought the book because I was intrigued to read Belsky’s thoughts about the ‘messy middle’. Belsky writes about this period, as a collection of peaks – ‘optimising’ – and valleys – ‘enduring’. It’s this period which benefits from volatility. Volatility being positioned as a good thing might sound counterintuitive to some, but Belsky argues that “volatility is good for velocity”:

“The faster you move, the better your chances of learning and momentum to soar above the competition.”

Scott Belsky, The Messy Middle

 

To achieve this level of velocity, Belsky encourages conducting experiments, and lots of them. Running these experiments means that you’ll be both enduring the lows and optimising everything that works. In “The Messy Middle”, Belsky shares a ton of lessons learned and tips, particularly in relation to those stages of your company or product that are dominated by enduring and optimising. Allow me to give you a quick shopping list of those points by Belsky which resonated with me most:

  • Avoid validation in the form of false positives –  To objectively observe the performance of your new creation or product, put yourself in others’ shoes. Belsky refers to points made by Ben Horowitz about telling the truth in this respect (see Fig. 1 below).
  • Celebrate progress and impact – Especially at the early stages, celebrate anything you can. Whilst you should avoid ‘fake wins’, celebrating quick wins and progress milestones is important.
  • Master the art of parallel processing – This involves being able to focus on a specific problem whilst also churning through the omnipresent anxiety and uncertainty involved in building things.
  • Friction unlocks the full potential of working together – Hardship brings your teams together and equips you to endure for the long haul.
  • Do Your Fucking Job (‘DYFJ’) – Leading a team through enduring times requires many “rip off the Band-Aid” moments. Nobody wants to inflict pain on their team, but quick and controlled pain is better than a drawn out infection. This also implies checking your ego at the door, instead concentrating on what needs to be done.
  • Self awareness as the only sustainable competitive advantage in business – Your sense of self is likely to shift when you’re at a peak or in a valley (see Fig. 2 below).
  • Break the long game down into chapters – Belsky recounts the approach by Ben Silbermann, CEO of Pinterest, who breaks up every period of his company into chapters, each with a beginning, goal, reflection period, and reward. Chapters help break down the long timescale it takes to build something extraordinary. I like to think of them as strategic milestones, each time getting one step closer to achieving the vision for the business.
  • Do the work regardless of whose work it is – Everyone has an opinion, but few are willing to do something about it – especially if it falls outside their formal job description. Belsky describes his marvel at just how quickly an idea takes hold when someone proactively does the underlying work no one else clearly owned. He goes on to talk about how hiring for people with excitement about the idea, ability to contribute right away and the potential to learn is key when assembling a team.
  • Never stop crafting the “first mile” of your product’s experience – Whether you’re building a product, creating art, or writing a book, you need to remember that your customers make sweeping judgments in their first experience interacting with your creation – especially in the first 30 seconds. Belsky call this the “first mile”, and he argues that it’s important to prime your audience to the point where they know three things: 1. Why they’re there (2) What they can accomplish and (3) What to do next.
  • Identify and prioritise efforts with disproportionate impact – Belsky shares a nice prioritisation method by Jeffrey Kalmikoff, which Jeffrey uses to help choose where to focus his energy: look at each item on the table and assign a 3 for very important tasks that would make a huge impact on strategy and revenue, a 2 for something with less significance, and a 1 for something inconsequential.
  • Stress-test your opinions with radical truthfulness – “Sound judgment, achieved through aggressive truth seeking, is your most differentiating and deterministic trait. It’s all about being honest.” This is one of the founding principles behind Bridgewater, the leading hedge funded founded by Ray Dalio. One of the most fundamental principles driving behaviour at Bridgewater is the notion of “Know what you don’t know, and what to do about it.”

Main learning point: In “The Messy Middle”, Belsky has written a book that I expect to be coming back to over the coming years; it’s a great reminder of the realities involved in creating things and contains a lot of valuable lessons learned as well as practical tips.

 

Fig. 1 – Ben Horowitz – Three methods for assigning meaning to hard truths, taken from https://a16z.com/2017/07/27/how-to-tell-the-truth/:

  • State the facts clearly and honestly.
  • If you caused it, explain how such a bad thing could occur.
  • Explain why taking the action is essential to the larger mission and how important that mission is.

 

Fig. 2 – Self awareness, by Scott Belksy – Taken from “The Messy Middle”, pp. 54-56:

  • Self awareness starts with the realisation that when you’re at a peak or in a valley, you’re not your greatest self.
  • Self awareness means understanding your own feelings enough to recognise what bothers you.
  • Self awareness means being permeable.
  • Self awareness comes from chronicling your patterns.
  • Self awareness means dispelling your sense of superiority and the myths that people believe about you.

 

Related links for further learning:

  1. https://www.themessymiddle.com/
  2. https://a16z.com/2017/07/27/how-to-tell-the-truth/
  3. https://www.adamgrant.net/
  4. https://www.mindtheproduct.com/2017/07/enter-matrix-lean-prioritisation/
  5. https://ryanholiday.net/stop-examine-reconsider/
  6. https://blackboxofpm.com/ruthless-prioritization-e4256e3520a9
  7. https://www.lifehack.org/articles/productivity/how-to-learn-what-you-dont-know.html
  8. https://en.m.wikipedia.org/wiki/Stroop_effect

Book review: “Powerful”

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“Radical honesty” is easier said than done. In her latest book “Powerful; Building a Culture of Freedom and Responsibility”, former Netflix’ Chief Talent Officer Patty McCord delivers a great plea for the importance and benefits of a culture of “radical honesty”, one of the many things McCord helped put in practice whilst at Netflix. This element of always speaking the truth is one of the tenets of the Netflix culture which McCord was instrumental in shaping and which she writes about in “Powerful”.

McCord looks back on the Netflix culture as one of freedom and responsibility, and describes Netflix’ approach to creating “the leanest processes possible” and “a strong culture of discipline.” I’m keen to unpick the main elements of Netflix’ culture and McCord’s approach to co-creating a ‘powerful’ culture:

  1. Transform organisational culture – McCord outlines where to start with transforming organisational culture: “identifying behaviours that you would like to see become consistent practices (…) then instilling the discipline of actually doing them.” This is very much an evolutionary process, consisting of lots of small steps. The book lists the core set of practices that underpinned the Netflix culture McCord co-created (see Fig. 1 below).
  2. Great teams contribute to success – McCord singles out contribution to success as the greatest motivation for the majority of people and teams. She talks about the energy teams get from meeting a challenge and states “great teams are made when things are hard.”
  3. Hire ‘high performers’ only (1) – My simple adage when recruiting is that if I’m not sure about a candidate or if I / we feel a persistent doubt about the candidate, it’s probably best to refrain from hiring that person. McCord goes one step further by saying that one should only hire high performers; people who do great work and challenge each other. This made me wonder whether this introduces a barrier to entry for less experienced or more junior hires? These people might become very good at their job and will – eventually – benefit from an environment that is both challenging as well as supportive.
  4. Hire ‘high performers’ only (2) – McCord’s point about the importance of “having a great person in every single position on the team”, and how this makes for a highly performant team, reminded me of Steve Jobs’ famous quote. “A players hire A players, but B players hire C players and C players hire D players. It doesn’t take long to get to Z players. The trickle down effect causes bozo explosions in companies.” Perhaps it’s because I don’t know the exact traits of an A player and how to best look out for them, but I struggle with the A player concept. As a result, I felt that the makeup of great teams was the least convincing aspect of McCord’s book. I wondered what McCord make of some of the thinking by Andy Rachleff, a well-known VC and founder, who argues that “when a lousy team meets a great market, the market wins.”
  5. Treat people like adults – McCord also makes the point that we should treat all employees like adults. I know this sounds obvious, but I’ve seen plenty of environments where people aren’t being treated as such. At Netflix, McCord and her colleagues got rid of a whole lot of process, and instead relied much more on people’s own good judgment. For instance, at Netflix they stopped onerous processes such as annual budget and roadmap planning. This introduces a large dose of “trust” into the mix which I believe is invaluable for any business or team.
  6. People don’t want to be entertained at work; they want to learn – McCord’s makes a point about how employees want to learn things at work; they want to solve problems and deal with challenges. Instead of employees spending a lot of time away from their jobs for off-sites or formal training classes, McCord argues, employees benefit from truly learning on the job. She also covers the importance of all employees fully understanding how the business works; this being “the rocket fuel of high performance and lifelong learning.”
  7. Radical honesty (1) – As mentioned above, “radical honesty” plays a key role in Netflix’ company culture. Whether it’s about telling the truth about the company (e.g. its challenges, problems, etc.) or to each other, it’s important that the truth is being shared at any given time. For example, McCord encourages people to be fully transparent about their decisions and where they went wrong.
  8. Radical honesty (2) – The power of asking questions is another important hallmark of the Netflix culture of freedom and responsibility which McCord describes. At Netflix, people were taught to ask questions such as “how do you know that’s true?” or “can you help me understand what leads you to believe that’s true?” People thus learned first hand about what McCord refers to as “the ethic of asking”.
  9. People have power, don’t take it away – McCord dismisses any talk of empowering people. Instead, she argues that people have power and companies shouldn’t take that power away from them. The company’s job isn’t to empower people; companies need to make sure all conditions are in place for people to exercise their power. As a business leader, McCord explains, your job is “to create great teams that do amazing work on time.” She mentions the importance of great leaders ability to spot people’s growth potential and to nurture this potential.
  10. Build the company now that you want to be then – When recruiting people, McCord advises company to focus on future, as opposed to just hiring for the here and now. Can the people you’ve got in your team now do the job at scale? Are you going to need them to do tomorrow the same job they’re doing now? What’s your plan for them? McCord shares a “fast-forward six months forward” exercise which she uses to shape teams for the future of the company (see Fig. 2 below).

Main learning point: I can see how some of the elements that McCord describe describes in “Powerful” might not be applicable to all companies or to specific challenges that readers might be facing. However, I believe that we can all learn from the underlying mindset which McCord describes in her book; whether it’s the importance of ‘radical honesty’ or letting people exercise their power.

 

Fig. 1 – Core set of practices that underpinned the Netflix culture – Taken from: Patty McCord, “Powerful: Building a Culture of Freedom and Responsibility”

  • Open, clear and constant communication: across the entire company about the work to be done and challenges being faced.
  • Radical honesty: telling one another, and management, the truth in a timely fashion and ideally face to face.
  • Debating based on fact based opinions: at Netflix, employees are expected to have strong, fact based opinions and to debate them avidly and test them rigidly.
  • Customer and company first: people to base their actions on what’s best for the customer and the company, not on attempts to prove themselves right.
  • Preparing teams for the future: hiring managers take the lead in preparing their teams for the future by making sure they’ve got high performers with the right skills in every position.

Fig. 2 – “Fast-forward six months” exercise –  Taken from: Patty McCord, “Powerful: Building a Culture of Freedom and Responsibility”

  • Imagine six months from now, you have the most amazing team you ever assembled and you’re saying to yourself, “Wow, those guys are awesome! I can’t believe what they’re accomplishing.”
  • First write down what the team will be accomplishing six months from now that it’s not accomplishing now. now. Use all the figures you want.
  • For those different things to be happening, what would people need to know how to do? What kind of skills and experience would it take for the team to operate the way you’re envisioning and accomplish he the things you’ll need to do in that future?

 

Related links for further learning:

  1. https://jobs.netflix.com/culture
  2. https://www.slideshare.net/reed2001/culture-1798664
  3. http://pattymccord.com/netflixs-patty-mccord-on-being-a-great-place-to-be-from-protect-the-hustle-ep-1/
  4. https://visualsynopsis.com/uncategorized/powerful-by-patty-mccord/
  5. http://firstround.com/review/this-is-how-coursera-competes-against-google-and-facebook-for-the-best-talent/
  6. https://recruitloop.com/blog/steve-jobs-top-hiring-tip-hire-the-best/
  7. https://daedtech.com/a-players-dont-hire-a-players-they-partner-with-a-players/
  8. http://web.stanford.edu/class/ee204/ProductMarketFit.html
  9. https://medium.com/parsa-vc/7-lessons-from-andy-rachleff-on-product-market-fit-9fc5eceb4432

 

Managing products of the future – Business as usual?

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“Managing products of the future” came up when I was thinking of a suitable title for a piece about products that look and feel very different to most products that we see today. Products such as driverless cars and voice assistants popped into my head as examples of products that are likely to dominate our daily lives before we know it.

However, these products are here already and I’m keen to look at if and how this does affect the role and focus of product management.

Will we manage products differently when the user interface of these products changes? Do we need to think differently about our products when data becomes the main output? Will customer needs and expectations evolve? If so, how? These and other questions I will start thinking about; considering the nature of machine learning, different product scenarios and their impact on the role of the product manager.

Taken from: https://robertmerrill.wordpress.com/2009/04/15/the-future-is-already-here/

It’s easy to get swept up by the hype surrounding AI and products based on machine learning, and to start feeling pretty dystopian about the future. But how much will actually change from a product management point of view? People will continue to have specific needs and problems. As product managers, we’ll continue to look at best ways of solving these problems. Granted, the nature of people’s needs and problemx will evolve, as it has always done, but this won’t alter the problem solving and people centric nature of product management.

To illustrate this, let’s look at some AI-base products and the customer needs and problems that they’re aiming to solve: Google Photos, Sonos One and Eigen Technologies.

Google Photos

Google Photos’ strap-line is “One home for all your photos – organised and easy to find”. Over the coming months, Google Photos will roll out the following features:

  • Using facial recognition, Google Photos will know who’s in a picture and will offer a one-tap option to share it with the person in question – provided that this person is in your phone’s contact list, Google Photos will have learned this person’s face. If that person appears in multiple images, Google Photos will even suggest to share all of them in one go.
  • Automated image editing suggestions, Google Photos will suggest different corrections based on the look and quality of the image. For example, if there issues with the brightness of the image, Google Photos will automatically display a “Fix brightness” suggestion.

Taken from: https://www.digitaltrends.com/photography/google-photos-suggested-edits/

With these new features, Google Photos aim to address customer needs with regard to sharing pictures and improving image quality respectively. These needs aren’t new per se, but the ‘intelligent’ aspect of Google Photos’ approach is.

Sonos One

The Sonos One is entirely controlled by voice. The speaker works fully with Amazon Alexa, which means that if you’ve got an Amazon Alexa compatible device, you can control your Sonos sound system through Amazon Alexa. Because Alex is a native app within the Sonos platform, you don’t even need to have an external Amazon device – i.e. Echo or the Dot – installed to control your Sonos One speaker. The installation of the Alexa mobile app will be enough.

Taken from: https://uniquehunters.com/sonos-one-marries-amazons-alexa-high-end-audio-hardware-exquisite-musical-enjoyment/

The integration with the Amazon’s Alexa voice assistant is a logical next step within Sonos’ mission to “empower everyone to listen better” and makes it easier for people to control the music they listen to. Granted, the user interface of Sonos One is different to other product; it doesn’t have buttons, for example. However, it still is a product like any other in a sense that it delivers tangible value to customers by solving their music listening needs.

Eigen Technologies

“Turn your documents into data” is London and New York based Eigen Technologies’ mission statement. The company enables the mining of documents for specific data. For example, if you work for a mortgage lender and are looking to make a decision about the credit worthiness of a home, Eigen’s data extraction technology helps to quickly pull out key ‘decision inputs’ from a number of – often very lengthy – property documents.

Taken from: https://www.artificiallawyer.com/2017/11/03/legal-ais-dark-horse-eigen-technologies-comes-into-the-light/

The way in which Eigen Technologies use machine learning algorithms, is ultimately to improve the speed and quality of decision making. Even though the underlying technology is based on machine learning, the outcome is very much like that of any other product: a clear user interface which shows the relevant document data that a user is interested in and needs to make decisions.

Main learning point: AI and machine learning based products will no doubt change the ways in which we interact with products and what we expect of them. However, existing examples such as Google Photos and Sonos One already show that the core of the product manager’s role will remain unchanged: building the right product for the right people and building it right!

 

Related links for further learning:

  1. https://productsthatcount.com/blog/66-google-vp-product-ai/
  2. https://www.wired.com/2015/05/bradley-horowitz-says-that-google-photos-is-gmail-for-your-images/
  3. https://blog.sonos.com/en-gb/making-sonos-one/
  4. https://www.engadget.com/2018/05/08/google-photos-will-add-ai-powered-suggestions-to-fix-your-images/
  5. https://techcrunch.com/2017/10/04/sonos-announces-alexa-controlled-wireless-speakers/
  6. https://www.digitaltrends.com/photography/google-photos-suggested-edits/
  7. http://www.wired.co.uk/article/sonos-one-alexa-review-uk-price
  8. https://techcrunch.com/2018/02/20/sonos-one-is-the-speaker-to-beat-for-those-that-want-great-sound-and-smarts/
  9. http://uk.businessinsider.com/connected-speakers-explainer-sonos-libratone-echo-google-home-2018-4
  10. https://assistant.google.co.uk/
  11. https://www.sonos.com/en-gb/social-impact
  12. https://www.artificiallawyer.com/2017/11/03/legal-ais-dark-horse-eigen-technologies-comes-into-the-light/
  13. https://www.eigentech.com/
  14. https://blog.bolt.io/what-cracking-open-a-sonos-one-tells-us-about-the-sonos-ipo-dcab49155643

My product management toolkit (29): analysing competitors

marcabraham1 Comment

Don’t believe anyone who claims that they don’t look at what their competition is doing. Agreed, there’s a fine line between doing a healthy amount of competitor analysis and being completely obsessed by what the competition is doing but I believe it’s important to understand how your product differentiates from similar products.

Competition is good. Product isn’t a zero sum game and it’s important to understand the competitive landscape that you operate in and to figure out your product ‘niche’. I try to do a competitor analysis of some form or other on an ongoing basis, as your competitive landscape is bound to evolve.

Before delving into ways of analysing competitors, let’s first look at the ‘what’ and ‘why’ of competitor analysis:

  • Understand where your product fits – Reviewing competitors helps to understand where your product sits within the market, analysing and comparing on aspects such as features, price, perceived benefits, etc.
  • No need to look at ALL competitors – Realistically speaking, it’s impossible to keep up with all of your – direct and indirect – competitors, all the time. When you narrow things down, you’re likely to find that a small percentage of companies in the market either scoop up most revenue or are direct competition in your specific market segment.
  • Treat competitor analysis for what it is; valuable guidance – Instead of getting obsessed with your competitor(s), get obsessed with your customer! I can only refer to a quote from the wise Sun Tzu in “The Art of War”: “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” I find it very helpful to understand the competitive landscape and the position of my product or service in it, without becoming completely distracted by the features a competitive product does or doesn’t offer. You don’t want your competitors to dictate which features (not) to include, and cause ‘featuritis’ as a result!
  • Find the perfect niche for your product – The likelihood is that your product will be targeting the same customers that other companies and their products are already serving. Your product needs to be exceptional and differentiated enough for customers to consider switching. Look at the market and ask yourself: “are we solving the same problem, but differently?” or “are we tackling a different customer problem altogether?”

Now, let’s look at some common tools you can use to analyse your competition:

 

SWOT analysis

Fig. 1 – SWOT analysis – Taken from: https://research-methodology.net/theory/strategy/swot-analysis/

The SWOT analysis is probably one of the more traditional ways of studying and comparing competitors. It might be an older method, but SWOT still holds true and is a tried and tested way of understanding your competitors:

  • Strengths – Specific characteristics and attributes which give a company competitive advantage. For example, one could argue that design, brand, a loyal customer base and innovation are key strengths of Apple.
  • Weaknesses – Specific characteristics and attributes which reduce the competitive strength of a business. For example, major debts and inadequate online presence hinder lots of today’s retailers to compete effectively with Amazon.
  • Opportunities – Advantageous situations or circumstances that can create new competitive power for businesses. Think, for example, of entering new geographic markets, new customer segments or new product opportunities.
  • Threat – Disadvantageous situations or circumstances which can hamper companies in their ability to compete. For instance, I expect ‘Brexit’ to hinder UK companies in attracting talented new recruits or operate globally.

 

Kano analysis

Fig. 2 – Kano analysis – Taken from: https://en.wikipedia.org/wiki/Kano_model

I’ve written previously about conducting a Kano analysis as I find this method very helpful when looking at the competition from a customer point of view. Understanding what the “basic needs” and “delighters” are in your market, will help  understand:

  • The position of your product – Understanding where a product sits vis a vis customer expectations.
  • Which battles (not) to pick – Where do you want to play and what will you playing for? Are you happy to just focus on so-called ‘hygiene’ factors or do you want to focus on more unchartered territory?
  • Potential product opportunities – Where are the opportunities for improved or totally new products, and why?

 

Lean Canvas

Fig. 3 – Ash Maurya’s “Lean Canvas” – Taken from: https://blog.leanstack.com/business-models-vs-business-plans-4a802e15c51d

Plenty of companies use Ash Maurya’s “Lean Canvas” to better understand your product and market, which is great. In addition, you can also use the Lean Canvas framework to compare and contrast competitors. For example, what’s the dominant channel of companies X and Y, and how does their path to customers compare to yours?

 

Direct customer feedback

My favourite way of analysing competitors is to hear directly from customers. For example, when I worked at a digital music service, I ran sessions simply observing people using the likes of Spotify, Rdio (which died a few years ago) and Soundcloud. This way, my colleagues and I could learn first hand about how people felt about our product in comparison to the competition.

With digital products and services, it’s harder to do a traditional “bind product test” but you can still observe and listen to people testing different products which are all trying to solve a similar problem. People will tell you why they think product A is better than product B, especially when you make it clear that you don’t have an allegiance with any of the tested products!

Fig. 4 – Blind product testing – Taken from: http://www.bloncampus.com/columns/fundamental/why-blind-testing-is-important-in-product-research/article7976927.ece

 

5 Forces of Competition

Fig. 5 – Michael Porter’s “Five Forces of Competition” – Taken from: https://www.pocketbook.co.uk/blog/2017/02/14/michael-porter-competitive-strategy/

I can imagine that you might have come across Porter’s “5 Forces” before. Like the SWOT analysis, the 5 Forces approach is a longstanding one which helps companies understand their sources of competitive rivalry and which factors they need to concentrate on in order to gain the upper hand.

Main learning point: Don’t shut your eyes and avert looking at the competition! Equally, don’t get freaked out by competitive products or services. Instead, analyse the competition to get a better feel for whether and how your product differentiates. You can then use these insights to focus more on delivering customer value and creating strong points of differentiation.

 

Related links:

  1. http://edwardlowe.org/how-to-conduct-and-prepare-a-competitive-analysis/
  2. https://www.quora.com/How-do-Product-managers-perform-competitive-analysis-for-enterprise-products
  3. https://medium.com/pminsider/real-competitive-analysis-is-about-learning-to-love-your-competitor-15e45b9ef10a
  4. https://marcabraham.com/2015/09/13/what-is-psychographic-segmentation/
  5. https://marcabraham.com/2016/06/17/my-product-management-toolkit-11-assessing-the-market/
  6. https://news.greylock.com/the-only-metric-that-matters-now-with-fancy-slides-232474cf414c
  7. https://blog.leanstack.com/business-models-vs-business-plans-4a802e15c51d
  8. https://www.pocketbook.co.uk/blog/2017/02/14/michael-porter-competitive-strategy/

My product management toolkit (28): testing price sensitivity

marcabrahamLeave a comment

Normally when I talk to other product managers about product pricing, I get slightly frightened looks in return. “Does that mean I need to set the price!?” or “am I now responsible for the commercial side of things too!?” are just some of the questions I’ve had thrown at me in the past.

“No” is the answer. I strongly believe that as product managers we run the risk of being all things to all people — see my previous post about “Product Janitors” — and I therefore believe that product people shouldn’t set prices. However, I do believe it’s critical for product people to think about pricing right from the beginning:

  • Do people want the product?
  • Why do they want it?
  • How much are they willing pay for it?

Answers to these questions will not only affect what product is built and how it’s built, but also how it will be launched and positioned within the market. I’ve made the mistake before of not getting involved in pricing at all or too late. As a result, I felt that I was playing catchup to fully understand the product’s value proposition and customers’ appetite for it.

Fortunately, there are two tools I’ve come across which I’ve found very helpful in terms of my comprehending the value a product is looking to achieve — both from a business and customer perspective: the Van Westendorp Pricing Sensitivity Meter and the Conjoint Analysis respectively.

The Van Westendorp Pricing Sensitivity Meter has helped me to learn about the kinds of pricing-relating customers to ask (target) customers:

  • At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)
  • At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)
  • At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)
  • At what price would you consider the product to be a bargain — a great buy for the money? (Cheap/Good Value)

The aforementioned Van Westendorp questions are a good example of a so-called “direct pricing technique”, where the pricing research is underpinned by the assumption that people have a basic understanding of what a product is worth. In essence, this line of questioning comes down to asking “how much would you pay for this (product or service)?” Whilst this isn’t necessarily the best question to ask in a customer interview, it’s a nice and direct way to learn about how customers feel about pricing.

Example customer responses to the Van Westdorp questions — Taken from: http://www.5circles.com/van-westendorp-pricing-the-price-sensitivity-meter/

The insights from applying these direct questions will help in better understanding price points. The Van Westendorp method identifies four different price definitions:

Point of marginal cheapness (‘PMC’) — At the point of marginal cheapness, more sales volume would be lost than gained due to customers perceiving the product as a bargain and doubting its quality.

Point of marginal expensiveness (‘PME’) — This is a price point above which the product is deemed too expensive for the perceived value customers get from it.

Optimum price point (‘OPP’) — The price point at which the number of potential customers who view the product as either too expensive or too cheap is at a minimum. At this point, the number of persons who would possibly consider purchasing the product is at a maximum.

Indifference price point (‘IPP’) —Point at which the same percentage of customers feel that the product is getting too expensive as those who feel it is at a bargain price. This is the point at which most customers are indifferent to the price of a product.

Range of acceptable pricing (‘RAI’) — This range sits between the aforementioned points of marginal cheapness and marginal expensiveness. In other words, consumers are considered likely to pay a price within this range.

Van Westendorp price sensitivity meter (example) — Taken from: https://www.qualtrics.com/uk/market-research/pricing-research/

 

In addition to the Van Westendorp Price Sensitivity Meter, I’ve also used Conjoint Analysis to understand more about pricing. Unlike the Van Westendorp approach, the conjoint analysis is an indirect pricing technique which means that price is combined with other attributes such as size or brand. Consumers’ price sensitivity is then derived from the results of the analysis.

Sample conjoint analysis question — Taken from: https://www.questionpro.com/survey-templates/conjoint-analysis-retirement-housing/
Sample conjoint analysis question — Taken from: https://www.questionpro.com/survey-templates/conjoint-analysis-retirement-housing/

 

When designing a conjoint analysis study, the first step is take a product and break it down into its individual parts. For example, we could take a car and create combinations of its different parts to learn about combinations that customers prefer. For example:

Which of these cars would you prefer?

Option: 1

Brand: Volvo

Seats: 5

Price: £65,000

Option: 2

Brand: SsangYyong

Seats: 5

Price: £20,000

Option: 3

Brand: Toyota

Seats: 7

Price: £45,000

This is an overly simplified and totally fictitious example, but hopefully gives you a better idea of how a conjoint analysis takes into account multiple factors and will give you insight into how much consumers are willing to pay for a certain combination of features.

Main learning point: I personally don’t expect product managers to set prices for their products or design price research. However, I do think we as product managers benefits from a better understanding of the pricing model for our products and a better understanding of what constitutes ‘value for money’ for our customers. The Van Westendorp Price Sensitivity Meter and the Conjoint Analysis are just two ways of testing price sensitivity, but are in my view to good places to get started if you wish to get a better handle on pricing.

Related links for further learning:

  1. Van Westendorp pricing (the Price Sensitivity Meter) – 5 Circles Research
  2. Conjoint analysis – Wikipedia
  3. Why You Should (Almost) Never Use the van Westendorp Pricing Model
  4. Van Westendorp’s Price Sensitivity Meter – Wikipedia
  5. Pricing research: A new take on the Van Westendorp model | Articles | Quirks.com
  6. Easy Guide: How To Run a Van Westendorp Pricing Analysis – Dimitry Apollonsky
  7. Van Westendorp Price Sensitivity Meter
  8. Conjoint Analysis – introduction and principles