EP46: Alan Albert – Why Much of What You Know About Your Customers is Wrong

 

Alan Albert is the President of MarketFit, providing strategic services that drive measurable growth. 

He is a co-founder of three software companies, selling one to Apple Computer. He conceived and led the design and development of multiple top-selling and award-winning products, generating over US$1 billion in cumulative revenue.  

In this episode, Alan leads us to a discussion about market segment, pricing metrics, and value, how they all relate to value creation and pricing . His vast knowledge about capturing value will give you a clear understanding of what value-based pricing is all about and debunks whys much of what you know now about your customer is wrong. 

 

 

 

Why you have to check out today’s podcast: 

  • What is Value Discovery Research 
  • Identifying what specific values the customers have and letting go over assumptions around that 
  • Why is it not necessary to follow your competitors’ pricing model 

 

“Whether your company’s biggest challenge is in the area of innovation or in marketing or in product or in pricing, they all tie into customer perception of value. Start by letting go of your own assumptions about what our customers should care about and take the time to truly discover and understand and gain insight into your customer’s perception of value.”  

Alan Albert 

 

Get Accelerate Your Subscription Business: Your Blueprint to Packaging & Pricing for Growth Course at https://www.championsofvalue.com  

 

Topics Covered: 

 

01:24 – What is Value Discovery Research? 

02:30 – What is Value?  

05:58 – Customer Value: What it means and how to create it

07:02 – Walking through the process of Value Discovery Research 

11:35 – Why value-based pricing is a misunderstood model 

13:56 – Values: Why most companies get it wrong

14:52 – What is Market Segment and how does this relate to Value 

16:46 – How does Value Discovery Research drive Pricing Model 

17:53 – What is a Pricing Metric 

21:05 – Why it is not effective to follow your competitor’s pricing model 

 

Key Takeaways: 

 

“The first step in value discovery research is to acknowledge that we do not know our customer’s perception of value. My definite definition of value is what something is worth in exchange as perceived by the recipient.”  Alan Albert 

 

“There is a difference though than having the same problem and having the same values about how to go about solving it. Some might want to solve it with a do it yourself approach. Some might want to buy the most expensive product on the market. Some may want to just dip their toes in and try something without being too committal. They all still have the same problem, but the values of the people may be different and that will lead them to different solutions.” Alan Albert 

 

“Often people think of pricing initially as picking a number, what price should we charge? And by focusing on customer perception of value, I’ve learned that pricing is actually an area for innovation that by changing the pricing model, companies can do a far better job of generating revenue and distinguishing themselves in the market than just picking a number.” Alan Albert  

 

“Following your competitor’s pricing is rarely the most effective strategy. Companies like Netflix with their all-you-can-eat subscription pricing or Amazon with Amazon Prime have seen just enormous gains just by coming up with innovative pricing models, by changing what people are paying for.” – Alan Albert 

 

If we know what our customers value and we can measure the delivery of that value, we can increase the price of our product so that those who are getting and receiving the most value and perceiving the most value are paying the most for it.” Alan Albert  

 

“One way of distinguishing your product or service in the marketplace is to use a completely different pricing model. This makes it so that your customers cannot directly compare your product to theirs as a commodity.” Alan Albert 

 

“Understanding the customer’s value is, does not mean you need to have a complicated pricing model. In fact, simplicity as you mentioned, is a virtue and that’s the beauty of something like Amazon Prime, like Netflix, all-you-can-eat subscriptions, it’s relatively easily understood and the value of it is quite clear.” Alan Albert 

 

 

Resources / People Mentioned 

 

Connect with Alan Albert:  

  

Connect with Mark Stiving:    

 

Full Interview Transcript

(Note: This transcript was created using Temi, an AI transcription service.  Please forgive any transcription or grammatical errors.  We probably sounded better in real life.)

 

Alan Albert: “Whether your company’s biggest challenge is in the area of innovation or in marketing or in product or in pricing. They all tie into the customer perception of value. Start by letting go of your own assumptions about what our customers should care about and take the time to truly discover and understand and gain insight into your customer’s perception of value.” 

[Intro]   

Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value and the fundamental relationship between them and I am Mark Stiving and today our guest Alan Albert. Here are three things you want to know about Alan before we start. He is the president of Market Fit, a consulting firm out of Vancouver, British Columbia. He does real live customer research. I can’t wait to hear about that and he offers something he calls the value discovery research, which I really want to learn about. Welcome, Alan!

Alan Albert: Thank you, Mark. I appreciate your inviting me here. It’s a pleasure.

Mark Stiving: Hey, what is Value Discovery Research? UTM did that, by the way. I love, I love that.

Alan Albert: Yes. Well, a value discovery research is structured research that is designed to discover your customer’s values, the values that they use in a particular context, particularly most commonly the values that bring them to choose a particular product or service. It turns out that our buying decisions are triggered by our values, and if we can discover those values, we can then do a better job of innovation, of marketing, and of course this is why we’re here today, a better job at pricing as well.

Mark Stiving: Yeah, absolutely. I want to make sure that we’re using the same word correctly and maybe it’s just a Canadian thing versus an American thing, but you say that we want to understand their values, and when I think of values, I think of, I value freedom, right? My values are honesty and I think of that different than what do I value in a product? And when I value something in a product is typically benefits or capabilities that are going to offer me. Are you meaning two different things or the same thing? What’s the meaning when you say the word values?

Alan Albert: So values are, as I look at it, the source of our perception of value. Values are very context-dependent. And so if we know the particular context that someone is making a decision in, for example, the context of buying a product, which is different than the context of continuing to use a product or recommending a product. But if we focus specifically on a particular context such as buying, we can then measure qualitatively and quantitatively through value discovery research the individual values that affect that decision. And in a typical value discovery research project, I will work with my clients and they will measure between 20 and 30 different values that are a problem, product or service related values. It may be their perception of risk, it may be efficiency, it could be ease of use. It varies from product to product. There’s no one set of values that apply to all products. But by focusing deeply on that customer’s perception of what is driving their decision making, we can end up with a list, a prioritized list from the most intense and most frequent values that surface during that decision making process to those that are unimportant all the way down to those that are negatively impacting the decision.

Mark Stiving: Well, let’s walk through an example of somebody making a decision to buy something.

Alan Albert: Sure.

Mark Stiving: So what, go ahead and give us a product and then talk through the types of values that you would find for that type of product.

Alan Albert: Oh, sure. One of my clients, currently and in the past is a company called Infobip. And you may not have heard of them, but you almost certainly have used their products. They are a supplier of the global messaging infrastructure. So if you’ve ever taken an Uber or had a message from an Uber driver, a message that your airline flight has been delayed, a message from your bank that, your balance has changed. That message was likely delivered to you through Infobip’s messaging infrastructure. And my first engagement with them was while they are a global market leader, one of their product offerings was just not gaining traction in North America. And I was engaged to coach them in the use of the value discovery research to train them to discover their customer’s perception of value. And then we used the insights that they gained, which were quite surprising to them to revise their value proposition and eventually their pricing as well.

Mark Stiving: Okay. Without getting into the pricing side, what types of things did the customers value? What kind of things did they find?

Alan Albert: I can’t disclose all of the details of what they found. So, some of those things were that the value that was biggest and largest on their homepage was actually perceived as quite negative, perceived quite negatively in North America. So they were actively driving customers away by boasting about something that they perceived as internal strength.

Mark Stiving: Yeah, I could see how that would be a problem. What I’m trying to get at here, Alan is, I’m trying to get some examples of values so that I have this really clear in my mind what it is we’re talking

Alan Albert: Okay. So one value that came out was that the value of being well-supported, having they’ve, a technical product, but the value of support was really important to them. And Infobip was very pleased to hear that because they prided themselves on the strength of their support, they considered their support the strongest amongst all their competitors and yet they were offering their support for free. So, this led to a pricing engagement and we changed their pricing model and their support department went from being a cost center to becoming a profit center by month six.

Mark Stiving: Nice. Very nice. You had mentioned that when you coach companies, you teach them how to do this both qualitatively and quantitatively. Can you walk me through the process? So let’s say that I want to go do a value discovery for my clients. What would you tell me to do?

Alan Albert: The first step in value discovery research is to acknowledge that we do not know our customer’s perception of value. My definite definition of value is what something is worth in exchange as perceived by the recipient.

Mark Stiving: I like your definition. When I define value, I always say the value is what a customer is willing to pay.

Alan Albert: Yes.

Mark Stiving: And so we’re essentially using the same definition. I like yours. Go ahead.

Alan Albert: Because it is as perceived by the recipient this means that the source of value is not in our product. The source of value is the recipient’s values and their values define what they are willing to pay for. So, what we do in value discovery research is we measure the frequency and intensity of each of a wide range, typically 20 to 30 different values that affect that buying decision. And through a highly structured interview with people who are within their target audience, people who care about that product or service, we learn about the ways that those values influence their decision making both qualitatively and quantitatively.

Mark Stiving: So, do you have a list of 20 to 30 values that you use over and over and over again? Or do we go out and do discovery to learn what values are important to us to create the list?

Alan Albert: Unfortunately, there is no one set of 20 or 30 that applies to all products.

Mark Stiving: So, I didn’t think so.

Alan Albert: Many values are highly context-dependent and product or service dependent. So we start with the client’s guesses about the values that are most likely driving the decisions. I actually get them and myself to predict before we do the research what values are going to be the ones that are most frequent and most intense for our target market. But then we go further, we do some brainstorming, we talk to customers and we compile a list that, we believe to be complete. And yet the structure of the interviews that we do when we conduct the research are designed to expose additional values that we may have missed beforehand. And typically we will discover one, maybe two new values that were not on our initial list. What is surprising to me and continues to be surprising is that while both I and my clients predict what those values, those top most influential values will be not once as a client been right about what those top three are and not once have I been right either.

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Mark Stiving: So, what I find fascinating is, as an industry, as a world, we all want to move towards value-based pricing. And yet absolutely nobody understands the value that they deliver to the marketplace.

Alan Albert: It is surprising to me and yet when I discovered the centrality of customer perception of value and that it came directly from customers’ values, I needed to figure out how to learn what those values are. And that was what led to the creation and the definition of value discovery research. And then when we learn what those values are, it is amazing how useful those two or three topmost, most frequent and most intense values are in crafting what I call a maximum value proposition. An MVP if you will.

Mark Stiving: I think that’s the wrong initials for you there.

Alan Albert: You think someone else’s playing those before?

Mark Stiving: Not only that, I think the usage that we all think of is the opposite of what you want them to do.

Alan Albert: Yes. This maximum value proposition is the value proposition that if we could offer it would maximally attract our target market. If we know what their values are, we can craft our product and innovate in the directions of amplifying the value is that we now know our customers care most about. Our marketing gets easier, too, because we can communicate that we’re delivering those values that we know that they care about and the most fun place of all to me is working on pricing because we can build a pricing model that charges them based upon the amount of the specific values that they care about most.

Mark Stiving: Okay. So I’m going to touch on pricing models in just a second. But first, I want to talk about the marketing piece. It seems maybe this seems a tutu. It seems so obvious to me that once we really understand the value that our customers care about, that suddenly that changes the way we should be talking to our market, the things that we could say that truly resonate with them. And yet it feels to me like companies don’t get this, is that I mean, it’s like they don’t understand the value.

Alan Albert: Well, I think they have heard now enough that value is central to a buying decision. The gap that I think exists is that their perception of what value does not match their customer’s perception of value. Often a company will think, well, I want more features for my money, so I’m going to put more features in my product or lower my price and that will increase value. Unfortunately, it works almost exactly the opposite by adding more features. We’re increasing the number of people who will think, well, I don’t need that feature, so it’s not worth paying for that one. I want half the features, for half the price and then it gets to be a race to the bottom.

Mark Stiving: And, so, segmentation certainly plays a huge role here. Can we be more specific on what the market segment is going after because then we understand their value?

Alan Albert: I’m glad you mentioned segmentation because, in our use of value discovery research to measure customer perception of value, we have a different definition of a market segment than is typically taught in say business school. That a definition of a market segment is a group of people who share the same set of values as it relates to a particular problem, product or service. And so, if you or I share the same values in deciding whether to buy a product or not, we’re going to end up buying the same product. And that means we’re in the same market segment. If we have different values that will lead us in different directions to different segments. So we use things like demographics because they’re easy and they’re convenient, but once we discover customers’ values, they’re a far more accurate way of reaching our customers.

Mark Stiving: Yes, I used to work for PragmatIC and there we define market segments as common sets of problems, so companies or individuals with a common set of problems and I think your concept of values are very, very similar to that because once we’re able to say, look at this, this set of problems or this set of values, now we can put together marketing programs that reach that specific group. Or we could create products that solve that set of problems or reach that set of values. So, I think that’s spot on.

Alan Albert: Yes, I think it’s similar in the, there is a difference though than having the same problem and having the same values about how to go about solving it. Some might want to solve it with a do it yourself approach. Some might want to buy the most expensive product in the market. Some may want to just dip their toes in and try something without being too committal. They all still have the same problem, but the values of the people may be different and that will lead them to different, different solutions.

Mark Stiving: Yup. I could agree with that, as well. So let’s jump into pricing models. How do you see the values discovery work driving what we’re gonna well, I’ll just, I’ll use your word pricing model for now and see where this goes.

Alan Albert: Often people think of pricing initially as picking a number, what price should we charge? And by focusing on customer perception of value, I’ve learned that pricing is actually an area for innovation that by changing the pricing model, companies can do a far better job of generating revenue and distinguishing themselves in the market than just picking a number. Following your competitors’ pricing is rarely the most effective strategy. And by, you know, companies like Netflix with their all-you-can-eat subscription pricing or Amazon with Amazon Prime have seen just enormous gains just by coming up with innovative pricing models, by changing what people are paying for.

Mark Stiving: As I do a lot of work in subscriptions nowadays, we have a phrase or a concept called a Pricing Metric. And the Pricing Metric is what are we going to charge for? And in the world of subscriptions, especially software as a subscription, this becomes a really big question. Really tough thing. And I often use the word value metric to mean how do my customers get value from my product? Or how would they measure the value I’m delivering to my product?

Alan Albert: Exactly. Well, I use the same terms. It’s great when we can share a common language. We start with the value metric because that value metric comes from our customer’s values. And we can discover our values with value discovery research. So, If we know the top three values that lead them to choose a particular product or service that is hugely informative and guiding us to choose the pricing metrics, the units by which we change the price of our products.

Mark Stiving: Yeah. So, that gives us the ability to capture more of the value, especially as our customers are growing or consuming more. Or we could think of it as they’re capturing more value so we should capture more value as well.

Alan Albert: Exactly. The more value we deliver through our product, whether it’s through more transactions, through reduced risk, both of which are individual values, by the way. If we know what our customers value and we can measure the delivery of that value, we can increase the price of our product so that those who are getting and receiving the most value and perceiving the most value are paying the most for it.

Mark Stiving: Yup. That’s perfect. Are there any other pieces in the pricing model besides the pricing metric? What are we going to charge for that you think about as you’re thinking, hey, we could be innovative in our pricing models.

Alan Albert: Following a competitor’s pricing model is rarely the most effective way. One way of distinguishing your product or service in the marketplace is to use a completely different pricing model. This makes it so that your customers cannot directly compare your product to theirs as a commodity. This bright, this is this price. They have that price. I’ll buy the one that’s cheaper. This way you can use your pricing model to distinguish your product in the marketplace, not just randomly, but in a way that maximizes the perception of the values that you know, that they have in choosing which product to buy.

Mark Stiving: That’s interesting. It makes sense. You see a disparate pricing model is actually really confusing pricing models. When we start talking about cell phone plans, boy, they just try to confuse the heck out of us just so we can’t say, Oh, this one’s cheaper than that one. But you know what’s kind of interesting as you look at all of the streaming video services now and every one of them seems to be copying Netflix. Here’s the all-you-can-eat plan. That’s, it’s pretty interesting. I think we’ll see some changes in those pricing models, eventually.

Alan Albert: I think they’re going to need to be because otherwise there will be a race to the bottom, one of those competitors is going to find themselves at a disadvantage in the marketplace. And we’ll have to do something. And discounting your way to success is rarely the most effective way. So, I share your expectation of some innovation and pricing models in that area.

Mark Stiving: Yeah. It’s rarely the most profitable to discuss this.

Alan Albert: This is true. But in addition to changing the pricing model, the packaging of your product, what features, services are included in particular bundles can have a big impact. But by understanding the customer’s value is, does not mean you need to have a complicated pricing model. In fact, simplicity as you mentioned, is a virtue and that’s the beauty of something like Amazon Prime, like Netflix, all-you-can-eat subscriptions, it’s relatively easily understood and the value of it is quite clear.

Mark Stiving: Yeah, simplicity is key. And I think simplicity comes when we do our segmentation better again because once we can price for a specific market segment, then we know how to communicate with them. We know what they value and we know, we know what to charge for that specific market segment.

Alan Albert: Absolutely. And by segmenting based upon their perception of value, it gets even easier.

Mark Stiving: Yep. Absolutely. I’m completely with you, Alan, we’ve got to wrap this up, but I always end with the following question. What’s one piece of pricing advice that you would give our listeners that you think would have a big impact on their business?

Alan Albert: So, no matter whether your company’s biggest challenge is in the area of innovation or in marketing or in product or in pricing, they all tie into customer perception of value. So, the piece of advice I give is to start by letting go of your own assumptions about what your customers should care about and take the time to truly discover and understand and gain insight into your customer’s perception of value. Your customer’s perception of value is likely not what you think it is, but when you discover it, this is an amazing amount of gain to be had for your company and for your customers.

Mark Stiving: I think that is an absolutely brilliant piece of advice. So, Alan, thank you so much for your time today. If anyone wants to contact you, how can they do that? You can reach me on LinkedIn. I am Alan Albert at MarketFit or they can reach me via email on or on the MarketFit website. I’m alan@marketfit.com.

Mark Stiving: Perfect. Episode 46 all done. Nice. Let’s see. My favorite part of today’s podcast, I think, well, besides the whole thing, I really like talking about the fact that customers don’t understand the value and we have to go help our customers understand it. Alan, did you have a favorite part?

Alan Albert: I enjoyed the entire conversation. I always enjoy having my thinking challenge, but I liked the discussion around identifying what the specific values the customers have and letting go over assumptions around that. Thanks so much for inviting me, Mark. It’s been a pleasure speaking with you today.

Mark Stiving: It was fun. It was fun. And to our listeners, what was your favorite part? Go ahead and let us know in the comment section of wherever you downloaded and listened to this podcast. While you’re at it, would you please give us a five-star review? Those are hugely valuable and we would greatly appreciate it. If you have any questions or comments about the content of this podcast or about pricing in general, feel free to email me, mark@impactpricing.com.

Now, go make an impact!

 

**Note: Mark Stiving has an active LinkedIn community, where he participates in conversations and answers questions. Each week, he creates a blog post for the top question. If you have a question, head over to LinkedIn to communicate directly with Mark.

 

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