At their core, all businesses sell some combination of money, status, power, love, knowledge, protection, pleasure, and excitement.
“Status seeking”—People care intensely about what others think of them.
(Not from the book, but relevant) When a person sees someone driving a Ferrari, they don’t go, “wow, this person is cool. I want to be like him”. They see themselves driving the Ferrari and go, “People will thank that I am cool”. Consciously build social signals into your offer to target market.
10 ways to evaluate a market
Urgency—how badly do people want or need this right now? Old movies for rent vs new movie on opening night, or e.g. iPhones on release day
Market size—how many people are actively purchasing things like this?
Pricing Potential—highest price a typical purchaser would be willing to pay?
Cost of Customer Acquisition—how easy is it to acquire a new customer?
Cost of Value Delivery—how much would it cost to create and deliver the value offered, both in money and effort?
Uniqueness of Offer—how unique in the market, and how easy is it for potential competitors to copy?
Speed to Market—how quickly can you create something to sell?
Up-front Investment—how much investment is needed before you’re ready to sell? Infra, equipment etc.
Upsell Potential—are there related secondary offers you could present to purchasing customers?
Evergreen Potential—once the initial offer has been created, how much additional work will you have to put into it in order to continue selling?
12 standard forms or value
Product—create a single tangible item, then sell and deliver it for more than what it costs to make
Service—provide help or assistance, then charge a fee for the benefits rendered
Shared resource—create a durable asset that can be used by many people, then charge for access
Subscription—offer a benefit on an ongoing basis, and charge a recurring fee
Resale—acquire an asset from a wholesaler, then sell that asset to a retail buyer at a higher price
Lease—acquire an asset, then allow another person to use that asset for a predefined amount of time in exchange for a fee
Agency—market and sell an asset or service you don’t own on behalf of a third party, then collect a percentage of the transaction price as a fee
Audience Aggregation—get the attention of a group of people with certain characteristics, then sell access in the form of advertising to another business looking to reach that audience
Loan—lend a certain amount of money, then collect payments over a predefined period of time equal to the original loan plus a predefined interest rate
Option—offer the ability to take a predefined action for a fixed period of time in exchange for a fee
Insurance—take on the risk of some specific bad thing happening to the policy holder in exchange for a predefined series of payments, then pay out claims only when the bad thing actually happens
Capital—purchase an ownership stake in a business, then collect a corresponding portion of the profit as a one-time payout or ongoing dividend
#3 would comprise museums, gyms and fitness clubs, although they are often bundled together with subscriptions. Not enough customers to spread out the cost of assets = bad. Too many will diminish experience and decrease customers, reputation and even increase maintenance costs. Find the sweet spot!
#4 actual benefits can be either tangible or intangible.
#10 can refer to buying things with volatile prices at a fixed price. If not, it’s a principle that’s all around us, like movie tickets. Buying one is buying an option to use your seat at a predefined time, at a particular show. You can even sell this option.
Efficacy—how well does it work?
Speed—how quickly does it work?
Reliability—can I depend on it to do what I want?
Ease of Use—how much effort does it require?
Flexibility—how many things does it do?
Status—how does this affect the way others perceive me?
Aesthetic Appeal—how attractive or otherwise aesthetically pleasing is it?
Emotion—how does it make me feel?
Cost—how much do I have to give up to get this?
Asking people what they want doesn’t work. People want everything. If you showed them all 9 of the economic values and asked them to rate them on a scale, they’d want everything. The thing is, the moment they walk out of your study, they’d be perfectly fine buying something that is not free and not perfect.
Entering a market with existing competition means there is a market of paying customers.
Iron Law of the market—there must be people wanting what you have to offer. Entering a market with competitors means you spend less time proving a market exists, and more time developing your offer.
A word on customer feedback: the worst response is not emphatic dislike—it’s total apathy.
Alternatives—as you develop your business offerings, you can’t do everything. Neither can you avoid making choices between competing alternatives. Add a particular feature, or not? Optimise for target audience A or B, or please both to a lesser extent? Examine alternatives from customers’ perspectives.
Trade-offs—time, energy and resources are finite. Even if you have enough money to buy an island, you still need to decide which island to buy. Predicting how people make trade-offs is tricky because values changes all the time. Values are preferences. The key is to look for patterns—how specific groups of people tend to value some characteristic in a certain context.
As a rule, people never accept Trade-offs unless they’re forced to make a decision. Since there is no perfect offering, people are happy to settle for the Next Best Alternative. The best way to discover what people value is to ask them to make explicit Trade-offs during the research process.