How to Boost Profits with a Deep Understanding of your Customer

When I was in university we had a design project, the task was to build a monument to something. My idea was a wall made of all sorts of recycled glass, each section different in color, shape, texture and/or pattern. The idea was to create the experience that no matter where you stood you'd see out into the world through a different lens. Change your stance and change your perspective.

It's much like a business, when they're trying to find answers to important questions. There are many customers out there one can serve. For businesses that try to serve them all, the view of the customer is unfocused and conflicted. But when you choose to focus on serving one, the answers come into focus.

Choose one customer group, then be an expert in them. Know their challenges and the solutions they seek. Find out what they value in a solution and how they make buying decisions. It may seem difficult to achieve. But once you’ve armed your business with that knowledge, you're well-positioned to bring excellent value.

The customer is the ultimate “judge and jury” of value. What they are willing to pay is linked to the value they believe they will get. This is why the better you know them the healthier (more profitable) your business will be.

Let’s dig a little deeper to find out more.

What are my customers willing to pay?

People always ask me, “How do I know how much my customers are willing to pay?”?

It’s a great question. It shows me they’re aware customers play a role in determining price. What’s interesting is this contradicts what many businesses (especially young ones) do in reality.

Product-based businesses tend toward cost-based models

Product-based businesses often base their prices on cost plus a margin. The thought process goes something like this:

• They’ve developed a cool product.
• They ask, who can we sell it to?
• They know their costs (more or less) and add them up.
• Then they add a margin on top to set the price.

I’ve worked with a lot of engineers and technical experts over the years. They’re typically more confident in numbers and less so in relationships and understanding people. They are great at what they do but it's rare to find a true marketeer amongst them. Plus costs are more easily accessible. Hence they tend to default to or lean on costs to set prices.

Service-based businesses turn towards competition

Other businesses, often service-based, tend towards market-based pricing, which goes something like this.

• We have this really cool method to help people
• How can we monetize it?
• Let’s see what the competition is doing
• I’m new so I’ll set my price 10% lower (or some percentage lower)

It feels simple to compare to others and copy or relate your pricing to what's already out there. But it’s often not used properly. It’s used without understanding what’s behind the competition's prices. And without knowing if they’re a good benchmark.?

You’ll find both approaches in product and service-based businesses alike. They are models that make sense in some cases, but are more often misused.

The main point is that both of these models leave the customer out of how the price is determined. Making it nearly impossible to answer the question, “What are my customers willing to pay?”

Value is in the eye of the beholder

This statement couldn’t be more true. It’s one reason why finding the right prices feels like you're chasing after a moving target.?What one person values is often different from someone else. It’s that diversity that makes the world interesting. It can also make many things in your business challenging.

Once I was working with a group of mostly product managers (engineers for the most part) on a new product launch. It was a team made up of people from the US and Switzerland. Each was sharing with the other what was important to their market. As we were discussing the product marketing we ran into a bit of a conflict.

One product. Two different market needs.

The Europeans would joke that the North American market needed the unit with 1 big red button and a coffee cup holder. This way the test couldn’t be messed up (i.e. "idiot" proof), as there was only one button to press. And the operator would have somewhere to put their coffee other than on top of the unit (where it might spill).

The Americans would joke that the European market needed a hundred different buttons, knobs and controls so they could adjust every possible feature and function manually. Even if it didn’t add any value to the testing and was unnecessary.

It was the same unit and performed the same tests. The standards to perform the test were the same in both North America and Europe. But what these customers truly valued was completely different. It reflected a very important difference in how the unit would be used. In Europe, engineers ran the test and in the US they were utility workers. Not to say one was better than the other, but how they used it and what they expected was different.

Make better business decisions, knowingly

There was no way to understand the different needs without understanding the customers. While there was a bit of joking going on between the two sides, it shows the importance of knowing who you’re targeting and what they value in a solution. You can be more precise with your offer and capitalize on delivering better value.

In the end, the product was designed and priced for a European market. Even though the original intent was to sell it globally. Unfortunately, it just wasn't suitable for the North American market. Something that should have been clear much earlier than it was. This is why nearly every business coach out there will tell you, you've got to know who you're targeting.

Yes, value is in the eye of the beholder. You better understand the “beholder”.

First figure out WHO.

Before you can understand them and what they value, you’ve got to be clear on who you’re targeting. Many businesses struggle to have that clarity. In the sea of possible customers, they’re trying to cast a wide net, which leads to things like:

• A lack of focus.
• A confused message.
• Average prices at best.

In the end, you end up positioning your offer to meet the needs of a more general population - i.e. lower value. General and one size fits all offers by definition appeal to a wide audience. But the offers aren’t as compelling. Leaving the customer feeling like "It’s ok.", rather than them feeling like “Yes! This is what I want.”.

If being a generalist is what you’re trying to do, great. If not, then choosing one target customer and being an expert in them brings more value. Plus once you've learned the art of mastering one, expanding to the next is much easier.

Master one, learn the formula and then move to the next.

“Getting to know you...getting to know all about you.”

I love musicals and couldn't help but start singing along with Julie Andrews.

Now that you’ve made the tough choice and decided who to focus on first, you can focus on getting to know them. There are two useful tools to use: interviews and surveys. If you're a young business or haven't done them, customer insight interviews are where you want to start.?

Customer interviews are a fabulous way to discover your customers. And test out some of the assumptions you’ve made in your business. You can go much deeper than with a survey. If you're just starting, it's what you need. The number one reason businesses fail is, there's no market need. Most of those who fail didn’t understand who they were targeting and what they valued. You HAVE to, to boost your odds of success.

If you can master the customer interview, you’ll be a master in your customer and make better business decisions.

Let’s take a closer look at the customer insight interview.

What is a customer insight interview?

First, let me be clear on what a customer interview is NOT. It doesn’t go like this:

• We have this really cool offer.
• What do you think of our offer?
• Do you like it?
• Do you want to buy it?

I'd call this a product validation interview or even a sales pitch. Consider the purpose or intent of the conversation. You're assuming you already know what the problem is and what they want. You're focused on assessing their interest rather than getting to know them. From their perspective it feels like a sales pitch.

In contrast, a customer insight interview focuses on understanding them. They are central. Forget you even have an idea of what you want to sell. Your sole focus is to understand:

• the customer's challenge(s),?
• what they seek in a solution,?
• what they value in a solution,?
• how they’re currently “solving” the problem,?
• what other options they’ve looked at,?
• how they make buying decisions
• and so on.?

In other words, without interrogating them, you’re trying to understand a day in their life. And in the context of the problem you think you’re trying to solve. I say “think” because part of what you’re confirming is that you’re solving the “right” problem.

The state of your mind is as important as the questions you ask.

Why Context & Frame of Mind Are Important

That's right context and frame of mind matter.

A couple of years back a client of mine needed help on pricing their services. The offer had to do with old equipment. For a fee, they would take it off the hands of one party, they’d refurbish it and resell to a second party. Good news: they did customer interviews. Bad news: they weren't listening. They were so focused on the solution they wanted to sell, they didn't listen to what the customer was telling them.?

During the interviews customers said, “We don’t know what equipment we have or where it’s located.”?

This was code for, "We've got a different problem to solve first." It wasn’t that their offer wasn’t of value, it was just that at that moment the customer couldn’t see past the immediate challenge.

Here’s the thing: if they’d listened better they would have known what to do. Which was to find a way to help the customer solve the problem that was in the way. Either offer a solution of your own or find a partner with a solution. Helping the customer solve the current problem, would have put them in a better position to sell the original offer.

When you're focused on selling or validating, you'll miss important even crucial pieces of intelligence.

This is why I say you have to “ignore” the solution and focus on listening. Your intention influences the outcome of the interviews. So be open, listen and unbiased.

The Art of Customer Insight Interviews

Over the years I’ve done thousands of customer interviews. The first ones were of course a bit wonky. And so might yours. You might even feel nervous about doing it. But here’s the thing. Not doing interviews should make you feel even more on edge because the consequence is more costly to your business.?If you're not comfortable doing customer insight interviews, now is the time to do something about it.

To get the most out of your customer insight interviews:

• Be clear about your intention
• Interview the right people
• Ask the right questions
• Listen without bias
• Clarify and confirm their response
• Use the information wisely

Master the art of the interview. Develop a deep understanding of your customer. And you’re on the path to better profits.

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