How Customers Decide to Buy

When a company is trying to figure out how to move its product and set itself apart from the competition, the first question in this process should not be, “how are we better than the competition?” But, “what is the customer trying to accomplish and what role can we play in enabling that?”

Eric Berggren a Professor of Marketing at the Kellogg School of Management at Northwestern University and Managing Director of Axios Partners, a management consulting firm focused on driving customer value, innovation, and management, visited our podcast recently and shared his thoughts on how to create unique value for your customers.

“Every successful business needs to sell something to a customer at a price where they can make money.“

ERIC BERGGREN,
PROFESSOR OF MARKETING AT KELLOGG SCHOOL OF MANAGEMENT AND MANAGING DIRECTOR OF AXIOS PARTNERS

“Every successful business needs to sell something to a customer at a price where they can make money,” says Berggren. “If that’s our challenge, we need to understand how customers decide to buy. I think they decide to buy based on the value they get from one product versus another, and they compare that to the price differential.”

Thus, the question about value should be answered from the customer’s perspective, not the seller’s.

Berggren acknowledges that it would be extremely useful to spend a year in the life of every customer to learn how and why they choose and use the products they do. He also wryly deems it impractical.

Barring that, companies need to understand and articulate how customers define:

• Value
• Performance outcomes
• Worth

Value is a relative term, and for it to be significant, it must be compared to something else such as the customer’s next-best alternative. “If we can’t beat the customer’s next-best alternative, we won’t have any trouble beating everybody else,” says Berggren.

“If we can beat the customer’s next-best alternative, we won’t have any trouble beating everybody else.“

ERIC BERGGREN,
PROFESSOR OF MARKETING AT KELLOGG SCHOOL OF MANAGEMENT AND MANAGING DIRECTOR OF AXIOS PARTNERS

There’s a problem with this though. Berggren observes that most companies are pretty good at understanding the customer’s journey using the product. They’ve also gotten better at understanding the buying journey, but they don’t have as good an understanding of all the other aspects of the customer journey.

“You need to compare value across the customer’s buying journey and from the customer’s perspective. Most companies are doing a pretty spotty job at this. Most companies do it from the point of view of how it applies to them, not the customer,” says Berggren.

The customer wants to achieve an objective. To what degree are you helping them or hindering them relative to the competition?

Next was performance outcome. Not all outcomes are equally important. You need to assess (hopefully in monetary terms), what each meaningful outcome is worth to the customer. Monetary terms are an easy yardstick, but quantifying value is often challenging.

The question of how you’re performing, or your worth, is the last thing that you need to ask about, rather than the first. Understanding why and how the customer values your product and company is critical.

Berggren calls this the bottom-up approach that is necessary to create a win. When a company decides to follow this process, it takes an all-hands-on-deck commitment across the company. Ideally, it should be co-led by the heads of the sales and marketing departments.

The results can be striking.

In one case, “We figured out what was valuable to the customer and found several ways to differentiate the offering with value-added systems, offerings, and programs,” says Berggren. “As a result, our client was able to increase their price, their profit margin improved by 40%, and their customer satisfaction went from the bottom quartile to number two out of 198. They raised prices in a commodities market, and their customers liked them even more for it.”

Because the customers perceived that they were getting more bang for their buck. “There’s money to be made in challenging the industry conventional wisdom,” says Berggren.

“There’s money to be made in challenging the industry conventional wisdom.“

ERIC BERGGREN,
PROFESSOR OF MARKETING AT KELLOGG SCHOOL OF MANAGEMENT AND MANAGING DIRECTOR OF AXIOS PARTNERS

“As a strategy consultant, the fundamental question is what markets and customers should we serve and how are we going to profitably win their business? To me, that comes down to customer value,” says Berggren.

This post is based on an interview with Eric Berggren, a Profession of Marketing at the Kellogg School of Managerment, Northwestern University and Managing Director of Axios Partners. To hear this episode, and many more like it, subscribe to the B2B Revenue Executive Experience.

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