Tuesday, January 17, 2017

Finding Good and Fair Customers -- Where Are the Sweet Spots?

Finding good customers is the essential to success for all businesses. It is especially important in early uses of the new FairPay business strategy that builds cooperative "customer first" relationships.

Almost everyone who hears about FairPay sees its appeal -- but they also see that, because this relationship-centered strategy seems unconventional, it may not be not suitable for all customers (at least not yet). So the question arises: "where does it work best?" Naturally, in experimenting with a new technique, the smart strategy is to begin with the low hanging fruit and low-risk learning. Here is a focused approach to finding those early sweet spots.

FairPay as a change in behavior

People almost universally understand the new balance of power represented by FairPay's invisible handshake as being compelling:
We will give you (our customer) real power to participate in pricing -- as long as you demonstrate that you are fair about it. We will reward your generosity -- but will withdraw this special privilege if you are unfair.
This makes relationship marketing a two-party repeated game that rewards cooperation on both sides, and is clearly in the interest of consumers who are willing to play. (As explained in FairPay Changes the "Game" of Commerce.)

Rational consumers should want to play the FairPay game with any business they want to have a maximally beneficial long-term relationship with. They will get the best value for their money (including value from the relationship that they could not otherwise buy at all). But behavioral economics has shown us that consumers are not homo economicus, not all that rational. So the questions are how will real customers react? There are two related questions:
  1. How hard is it to get customers to use their pricing power fairly, given the current mind-set of many modern consumers to look for bargains -- to take a very short-term view of commerce as a brutally zero-sum game of deals, not relationships?
  2. Is the cognitive load of participating in the FairPay pricing process too burdensome for most customers -- compared to "one-click" seamlessness of "take it or leave it" set-pricing? (Of course this is a bit of a false comparison, given that bargain hunting leads many consumers to take on huge cognitive loads -- such as for credit card bonuses and airline rewards, some extremists spending days researching and making "mileage runs" to get miles with most of the costs and none of the benefits of going anywhere.)
Start with the low-hanging fruit 

The question that matters is not how hard it is to convert your total market of customers, but whether there is a segment of customers who will take naturally to FairPay -- who will make it effective and profitable early on, with a minimum of difficulty:
  • What is the nature of those low-hanging fruit customer segments?
  • Where can we find and engage them? -- in what businesses sectors?
  • How can we target them with niche initiatives to prove the concept and refine it at low cost and risk?
  • How can we leverage our early learning to quickly make FairPay more simple and habitual?
  • How can we then build on that learning with select customers to broaden the market? 
FairPay is an engine that motivates fairness, but it makes sense to begin using early versions of that engine where it will prove most effective -- in populations that will be eager to take to it. And even if expansion beyond those limited populations is slow, why not enjoy that ripe fruit and increase the Customer Lifetime Value (CLV) of your best customers?

Think of these early sweet spots as the thin end of the wedge of behavior change. As customers begin to see how it improves their customer experience -- their value experience -- they will want to use it more, and others will want to join in that.

Natural customers for FairPay

FairPay is not a new behavior, but a reversion to behavioral norms that are natural, and were the way people conducted business with one another for millennia. But that is a change from current consumer mind-sets (bargain-hunting), and some customer segments will adapt to that more readily than others.
  • Some will be slow to shift from short-term, zero-sum thinking -- viewing businesses as an enemy to exploit or be exploited by -- while others will jump at the opportunity to build a productive and cooperative relationship. 
  • The trick will be to find lines of business and customer segments who are most disposed to welcome this new logic, those for whom it is most natural.
The behavioral science behind this is addressed in my post Making Customers Want to Pay You -- Research on How FairPay Changes the Game. The key idea is that there are two factors to work with:
  1. Social Value Orientation (SVO), essentially pro-social versus pro-self, as individual traits
  2. Economic/Exchange Relationship Norms versus Communal Relationship Norms, as situational variables in a relationship. 
The sweet spot is in targeting high Social Value Orientation (pro-social) customers, and nudging them toward Communal Relationship Norms. That suggests two related factors to the segmentation strategy:

1. Start with those disposed to generosity -- “superfans” who are loyal and perceive high value (especially appreciative customers of providers who demonstrably deserve generosity for delivering high quality, service, and social value). They are the ones who will respond best to the pricing privilege that the seller grants to the buyer in FairPay, to price in a way that considers fairness to the seller, and who will be least inclined to abuse that privilege.  Managing FairPay offers for these buyers will be mostly carrot, and not much stick. They are the ones who will be most willing to pay you generously for your product or service -- as long as you establish and maintain your position as deserving, delivering on your promises, and asking in the right way for fair compensation.

2. Start with those disposed to cooperation -- dedicated customers who are thrilled to share pricing responsibility, and are willing to bear some modest burden to do that right. What is needed is
not just a desire to be fair, but willingness to make the effort to do so. For that, the key is to target customers who are dedicated to the product or service and/or the provider. Again, loyal/"superfan" customers are most likely to have this dedication. (Benji Rogers of PledgeMusic observed to me that "superfans will happily crawl on broken glass" to support their favorite artists.)

These are the customers who will be worth your while to start with. The FairPay process enables you to test for these attributes with low risk, nudge those who are amenable toward cooperative and profitable behaviors, and cull out those who are not (at least until there is reason to think they might be more ready to cooperate). Many posts on this blog explore various aspects of how to do that, in various business use cases.

Of course it is still essential to make the process as simple and seamless as possible. More of the theory behind that is outlined in
Thinking Fast and Slow about FairPay: A New Psychology for Commerce in a Networked Age.

(As to the related question of how can we leverage our early learning to quickly make FairPay more simple and habitual, I will address that in a companion post.) 

Natural businesses for FairPay

Some businesses will naturally motivate willingness and dedication of their customers to be fair -- and some naturally attract more than their share of customers who are already predisposed to such behavior. Other posts have examined the application of FairPay to some such businesses in detail, for example:
Those (and other human creator-driven businesses) are some that are obvious naturals, but many other kinds of companies have already established themselves as having a "customer-first" attitude that makes them deserving of Communal Relationship Norms -- demonstrating that they consistently seek to deliver quality products and services, care about dealing fairly with their customers and are respondive to their individual needs. Such business are also in a prime position to start applying FairPay to their most promising customer segments. (Check out my more comprehensive list of Application/Market Sectors that seem especially likely to do well with FairPay.)

Whatever the field of business, a critical success factor will be the ongoing demonstration of customer-first behaviors that continually lead customers to see the business as responsively listening, and deserving of their trust and generosity.

Grabbing the low-hanging fruit

The next question is just which phase of the customer journey to start with -- to further maximize likely success and minimize risk. Three areas are especially promising as starting points for testing:
Other possibilities include selection of test populations in any way that limits risk and targets segments that appreciate the value of the offering and the personalized value proposition, such as:
  • Usage or style segments
  • Content segments (such as long-tail items, or by genre)
  • Device segments
  • Family plans
  • Segments that can highlight “deserving” sellers
  • Trials, specials, coupons
  • Distinct branding or white label offers.
Keep in mind that these can focus on either high value/usage or low value/usage segments. An important feature of FairPay is the price discrimination that justifies lower prices to those who get lower value. For example, retention offers can focus on low usage customers who are well justified in seeking to pay less that the usual all-you-can-eat price. In such cases, those who are asked to pay more can be given to understand why it is that these others pay less, even if that fact becomes known.

Staging the learning process

FairPay is well suited to a step-wise introduction that allows for testing and learning at low cost and risk. The idea is to let both the business and the customers ease into the new logic of FairPay and learn how to apply it effectively. This is addressed in the post FairPay “Free Trial”/“Survey” Mode – Easing into the FP Waters -- And Understanding Your Customers. The Trial/Survey mode it describes can generate significant learning with only simple software -- that can help shape a full FairPay implementation, as well as generate customer value perception data that is valuable in its own right -- even if the project goes no further.

The thin end of the wedge

All of these strategies can lead to effective trials that will serve as the thin end of the wedge of behavior change. The initial strategy should be to find these sweet spots and do low-risk controlled tests there. Businesses and customers will begin to see good results and learn how to apply this kind of win-win strategy. That will generate a virtuous cycle, to increase the loyalty and CLV of the initial customers, then to attract more customers to the game, and then to lead a growing range of firms to create FairPay zones, which will then bring more customers who are ready and willing to cooperate in this more win-win mode of commerce.

With this kind of focused, and carefully staged approach, the risks can be kept small and easily managed, the learning can be done over time, and the potential rewards can be immense!


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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


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