What are your customers paying you for?

    Strategos

    One of the key strategic concepts that Senior Executives like to explore is Willingness To Pay(WTP). In commodities business, like iron ore or cement, radical innovations expected by Senior Executives are mainly related with revolutions in customer’s perceptions of value or alternative mechanisms to avoid price comparison in the market. Most of the time these executives don’t expect much from technology in the mid-term and lean operations are already in place. Their shareholders are asking for clever ways of capturing extra value from the same asset base.

    Changing perceptions of value or making it difficult to compare value propositions can be achieved through mechanisms like added services, bundles of products, new attributes or sometimes simply by communicating attributes in a new way. Those are mechanisms that will change the absolute or relative willingness to pay of your customers.

    How much are you willing to pay?  

    Changing the Willingness to Pay of an existing or new specific product or service demandsmore than a tactical move. It becomes crucial to rebuild, redefine, and reorganize a key element of your business model – how do you see your customers (who they are and how they behave). No company can maximize WTP of a customer if they don’t know what is really motivating them when they desire, purchase, use and discard the product or service – what does he truly value? What is it that surprises him? What is it that makes him magically bond to our value proposition?

    Very few companies do it well and it’s becoming increasingly difficult in a world where customers behave in contradictory ways. But the value of understanding and mapping them the right way may give you a unique strategic advantage. When we explore WTP there are three key starter questions you should ask yourself.

    Do I really know who my customer is?

    More and more, even when it comes to B2B businesses, companies need to understand the multiple variables that create the individual identity of their customers. No matter which businesses you are in, you have to view your customer in the many roles he has, the different situations he finds himself in, his interests etc. His job, family situation, hobbies or religion are all included in this complex mixof attributes. It is the intersection of these different dimensions that will generate the right insights to see how he relates with your propositions andunder which circumstances.

    Islamic Banking is a good example of a new kind of segmentation in banking industry. By bringing a new set of Sharia compliance rules to asset management, banks established religion as an additional key segmentation dimension to capture new customers.

    Know them better and you will develop the right tactics to maximize his WTP.

    What are the different circumstances my customers find themselves in?

    How much would you pay for a glass of water in the middle of the desert? Segmentation is also about understanding the context and the situations in which customers buy or  consider a company’s value proposition. If you understand that there is a group of customers that usually buys your water in the middle of a desert, you will probably do much better than yourcompetitors that only sell bottles of water to mass retailers without any consideration for the end users. Find the different circumstances, use them inyour segmentation plan and you will be able to identify new services, features,experiences or communication to maximize your customer WTP.

    What are the customers’ deep reasons for consumption?

    In 2009 I was working for one of the major flat screen TV producers in the world. During a Boardmeeting everyone agreed that by segmenting clients in B2B retailers and B2C retailers was one of the main sources of value destruction. Someone asked the simple question – “why are we targeting retailers when the only way to favorably change the demand curve is by changing our end customer’s WTP?” This question was the trigger for a new market segmentation – the “couchstyle” (people’s lifestyle on their couch) became the key segmentation framework. New product features, services and specially bundles of products where redefined to match the “movie lovers”, “the football fans”, “the video gamers” and “the soap opera housewives”. It is interesting in this example how the TV screen industry had forgotten its end customers and focused mainly on the retailers over the years.

    Having a closer look at the end customers, the one who uses your product or service could surface new insights about additional dimensions beyond mere demographics. Using these to drive segmentation can lead to innovating elements of the business model that impact WTP in a positive way.