Archive for February, 2011

Price testing: monadic purchase intent test

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This is the tenth post in my Customer Research series.

Today I read a fantastic post on the Vovici Blog by Jeffrey Henning on monadic price testing.  You can read it here.   In fact this is such a fantastic blog that if you are interested in customer research at all, you should subscribe to the feed – I haven’t found any post that’s not insightful and educational on this blog yet.

The post on monadic testing was particularly apropos for today since we had some new team members come on board, and we reviewed the methodology and outcome of a purchase intent at price study we did early last year that used this methodology. In a nutshell, here’s what you do:

  • Come up with a screening questionnaire that will only let in the respondents you care about (e.g. you will want to screen for people that fit your primary buyer persona.)
  • Come up with a “product concept” that describes your product or service’s key value proposition. This tends to be a two page text and image based presentation in an on-line survey.
  • Pick the price points you want to test.
  • Send out the survey to several groups of respondents, each of which will see the exact same product concept, at one of the prices you want to test.  Respondents are asked to rate their likelihood to purchase on a 5 point scale.
  • Keep collecting completed surveys until you have at least 100 samples per price point (Best practice suggests collecting 100-400 samples per cell).
  • Now tally the results and see if the top-two-box scores (percentage of people who respond with “very likely” or “completely likely” purchase intents) show any kind of a trend as you vary the price.

A lot of times people assume adoption will rise as price drops. In reality that’s true only if the product or service is not valued by the target respondents or if there is an obvious comparable product that has a low price.  If a monadic study like this shows no obvious trend when you vary the price for the exact same product concept, that is a clear cue to product management to hold the price and not cave in to channel pressure to drop the price.

The reality is that retail and other channels will always pressure a business to drop the price – but that’s not always going to result in an uplift in customer acquisition.  If the customer has substantial pricing elasticity, then dropping the price only serves to reduce your margin, and doesn’t necessarily buy you additional market share.  Something to keep in mind when thinking about how to price your products and services.


Trust your gut

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Recently a situation came up at work where we ran into a critical performance issue with one of our key suppliers.  Their performance raised grave concerns, and all the mitigation activities we undertook in the past week did not help.  The work output was simply not acceptable in either quality or quantity.

The ironic thing was that we had concerns going into this relationship.  The supplier came in with glowing recommendations, and they had expertise in a key area that was of vital importance to us.  During the due diligence process, something didn’t feel right.  But they submitted a credible RFP, so we went with them anyways, against our gut instincts.

Looking back, I now realize the warning signs were all there when we were processing the RFP’s.  The performance problems today were foreshadowed by cues we picked up in various conversations.  We picked them due to their domain expertise, but at this point, not only have we not enjoyed the benefit of that, we are also facing the prospect of a large mitigation effort to fix this mess, which meant lost dollars and lost time in the development cycle.

My M.O. in hiring in a time of great schedule pressure has trended in the direction of domain expertise.  But this time I made the wrong call.  I should have listened to our gut and gone for the best athlete instead.  There was another bidder who came in very strong, with a fairly competitive price, but who did not have the specific expertise we required.  I have a feeling that we would be in a much better situation if we had gone with them instead.

Lesson learned: trust your gut. If all logic points one way, but your gut tells you to go a different way, there is usually something profound at work and it’s worth stopping in your tracks and trying to figure out why.

At least we caught this issue early and will be able to address it swiftly – no point in letting a bad situation drag on.

“Nothing is what happens when everyone has to agree”

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Silicon Valley Product Group recently published a fabulous article on consensus versus collaboration.  You can read the article here.

The article quotes a great line from Seth Godin: “Nothing is what happens when everyone has to agree”.  I often see an excessive need for everyone to agree in companies big and small.  Some leaders confuse consensus with collaboration. They feel that unless there is consensus, they cannot move on.

This is a problem because people on a team can have strong convictions and opinions.  In situations where there is no obvious right or wrong answer, an otherwise good team could get stuck.  People with fundamentally incompatible points of views get trapped in their own positions, which they continue to expound without stopping to listen to each other.   It is up to the team leader to facilitate dialog and guide the team to consensus, and if that doesn’t work within a reasonable timeframe, to put a stop to this and make a call.  Otherwise the team will stay stuck and get nothing done.

Team members in a well constructed, reasonably diverse cross-functional team will bring different perspectives to the table.  That’s good. We want and welcome a healthy debate because it helps us consider the facts from multiple angles.  However, the final decision rests with the person in charge of that decision, even if it will make part of the team unhappy.

In the words of my friend Agnes, who once served as the CEO of a small investment bank: “I’m not here to win the popularity contest.”  To lead is to have the courage to make unpopular decisions from time to time.  Good leaders make sure everybody’s voice is heard, make the decision, agree to disagree, and move on.

If you are part of a group where someone else made a decision that you disagree with, you should by all means share your concerns in a professional and constructive manner.  Make sure your facts and rationale are presented and understood.  If it is important enough to you, state your dissent opinion on the record.  Agree to disagree, then get behind the decision and pull your weight in implementing the plan of record.  You shouldn’t expect any less from yourself or anyone else in your team.

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