why people won't buy your product even though it's awesome

Download Why People Won't Buy Your Product Even Though It's Awesome

Post on 09-Apr-2017




3 download

Embed Size (px)


  • Why People Wont Buy Your Product

    Even Though Its Awesome Contributed by David Tang on May 6, 2013 in Strategy, Marketing, & Sales

    Its a common business problem faced by any size company, big and small.

    The situation is youve developed a brilliant product. Compared to the incumbent or

    existing way of doing things, your product is more feature-packed, is easier to use, and is

    more economical to the customer.

    The problem is your sales suck. Why arent customers banging down the door?

    Are customers irrational?

    The answer is yes. Numerous studies have showed that consumer behavior is

    irrational. If you assume otherwise, then you are also behaving irrationally.


  • To understand why people arent buying your product, it is imperative to understand some

    key concepts in behavioral economics. Here are three important principles to be cognizant


    Principle 1. Losses Loom Larger than Gains

    Every new product provides perceived gains and losses for the customer. These gains and

    losses need not be financial. For example, lets say you are starting an online grocery store

    for your municipality. With the promise of groceries delivered to the door, the perceived

    gains could be convenience, time savings, and effort savings. On the other hand, you are

    altering the way the customer performs a certain processbuying groceries. This change will

    translate to perceived losses (i.e. financial and non-financial costs), which can include the

    inability to handpick produce and meat, delivery fees, and having to be home during the

    delivery window.

    When we look at this objectively, online groceries is a clear superior choice. Convenience,

    time savings, and effort savings are great value propositions, after all.

  • However, when the customer evaluates options subjectively, it becomes unclear whether

    online groceries is the still better choice. In fact, it is likely the customer views online

    grocery shopping as the poorer choice. This is because losses loom larger than gains.

    A consumer has an inherent Consumer Bias . This bias weighs a loss three times that of a

    benefit. To put it another way, the objective value of a gain needs to exceed the objective

    value of a loss by three times for the customer to perceive the new product as better than the


    Principle 2. Reference Points Matter

    The second principle to understand is different people have different reference

    points. These reference points matter. The reference point simply refers to the persons

    current state of being.

    Continuing our online grocer example, the reference point of a typical customer is someone

    who currently goes to the physical supermarket to pick up groceries. This process may

    already be part of the customers weekly routine. Gains and losses are relative to this state

    of being.

  • For two people with different reference points, a gain for one person may be perceived as a

    loss for the other. To illustrate this concept, lets look at the price of gas. Assume the

    average price for a gallon of gas in the US is $3, whereas its $10 in the UK. If a US

    customer came upon a gas station charging $6.50/gallon, she would be furious. If a UK

    customer came upon the same situation, she would be ecstatic. (Also, note that even though

    the objective difference is the same for both customers, the US customers sentiment would

    be more affected than that of the UK customer, because losses loom greater than gains.)

  • The Value Function Illustrates Objective vs. Subjective Values

    By understanding your customers reference point, you can determine her perceived gains

    and losses. In most cases, your reference point is different from that of your

  • customers. This is because you have already used and experienced your product, whereas

    your customer has not. Your product has become part of your state of being. This disparity

    in judgment is captured in the concept known as the Innovators Curse .

    Principle 3. Endowment Effect

    According to the Endowment Effect, people value items in their possession (i.e. part of their

    endowment) more than items not in their possession. This is because people are loss


    This behavior sheds some light on why losses loom larger than gains. If a customer is

    already accustomed to an existing product or existing way of doing things, it becomes hard

    for her to give that up and changeeven if the alternative presents greater benefits.

    Are any of these principles hindering your sales?

    Recognizing and understanding these three principles of behavioral economics is crucial. It

    allows us to develop product strategies that specifically counter consumer adoption barriers

    at play and leverage behavioral tendencies.

  • Now, lets look at three such strategiesone for each principle.

    The 10X Rule

    If losses loom larger than gains, then we need to create a product where the gains greatly

    dwarf the losses. Create one where the benefits are 10X that of the losses, so that all

    economic and psychological switching costs are overcome. This is also known as Andy

    Groves 10X Rule. Andy Grove, Intels third employee and former CEO, had stated, for

    widespread adoption, a new product has to offer a 10X improvement over the incumbent


    Of course, this strategy is easier said than done.

    Reference Point Pivot

    Since reference points dictate how customers perceive gains and losses, it makes sense to

    seek out customers with favorable reference points. Think about it this way. In one market,

    your product may have fulfill the 10X Rule. In another, your same product may be

    perceived as 10X worse!

  • During its earlier years, Walmart opened stores only in rural areas to compete against local

    mom and pops. Compared with these incumbent retailers, Walmart was a clear 10X

    improvement. If Walmart had started off launching stores in metropolitan areas instead,

    where large department store chains were already established, Walmarts growth would

    have been hindered.

    Ideal markets are ones filled with first time buyers. For the first time buyer, her reference

    point is neutral. She doesnt have any preconceived biases over existing benefits lost and

    new costs incurred, because she doesnt currently use the incumbent solution. Thus, for

    many products, it is easiest to launch in emerging markets. This is because emerging

    markets (e.g. BRICS nations) are filled with first time buyers. Read more about entering

    emerging markets here .

    Freemium Model

    The Endowment Effect has an interesting implication. It implies the customer will spend

    moremo money, mo time, and mo effortto keep something she has than to obtain

    something for the first time.


  • With this insight into consumer psychology, many companies offer free samples to get

    customers hooked on their products. Once the customer begins using the product, she will

    appreciate the benefits it offers and is likely to spend money to retain these benefits. This is,

    in essence, an example of Reference Point Pivot.

    Similarly, a popular business model adopted by many Internet SaaS companies is the

    freemium model. In the freemium model, the customer is first presented with a free

    version of the product. Then, the customer is offered (or forced) to a premium version.

    For a more in depth discussion on product adoption, consumer psychology, and product

    strategies, take a look at this business document: The Psychology of Product Adoption .

    Still no dice?

    Of course, if your product is awesomeyou think so and your customers agreethen lack of

    sales could be due to poor marketing. Ramp up your marketing, sales, and biz dev efforts.

    Interested in business strategy? Check out Flevys collection of business frameworks , most created by former

    consultants of top tier consulting firms.


  • EDIT: I have just published a new article, The Complete Guide to Product Adoption . This

    article analyzes product adoption on the market level, product level, consumer level, and

    tactical level; and is based on a number of established business strategy frameworks.

    Please also share your thoughts, experiences, and advice in the comments. Thanks!


  • About David Tang

    David Tang is an entrepreneur and management consultant. His current focus is Flevy , the marketplace

    for premium business documents (e.g. business frameworks , presentation templates , financial models ).

    Prior to Flevy, David worked as a management consultant for 8 years. His consulting experience spans

    corporate strategy, marketing, operations, change management, and IT; both domestic and international

    (EMEA + APAC). Industries served include Media & Entertainment, Telecommunications, Consumer

    Products/Retail, High-Tech, Life Sciences, and Busines