How to Use Social Media for Market Research

Social media isn’t a perfect source of market research: It’s not a representative sample and, for small businesses, it’s simply too small of a sample. But for large organizations, it’s still a critical one. Why? Because it includes your most passionate fans. It’s also a rare source of candid consumer opinion: 80% of social media […]

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Social media isn’t a perfect source of market research: It’s not a representative sample and, for small businesses, it’s simply too small of a sample.

But for large organizations, it’s still a critical one. Why? Because it includes your most passionate fans.

It’s also a rare source of candid consumer opinion: 80% of social media posts are about ourselves, and those opinions and beliefs—expressed individually and within a community—are not interrupted or biased by participation in a formal study or company-run focus group.

Further, consumers crave communication with brands on social media:

  • 95% of adults between the ages of 18 and 34 are likely to follow a brand through social media channels.
  • Buyers report spending 20–40% more money on brands that have interacted with them on social media.
  • 71% of consumers who have had a positive experience with a brand on social media are likely to recommend the brand to friends and family.

Not all social media market research comes from active participation. When GE Life Sciences wanted to learn how customers discussed protein purification, they analyzed 500,000 protein-related comments on social media. The data improved content creation, tailored website vocabulary to the voice of the customer, and honed their search strategy.

To conduct similar market research successfully on social media, you need to know:

  • What social media is good (and bad) at assessing;
  • Which social platforms are best for research;
  • How to encourage an informative and engaging conversation.

What is social media good (and bad) at assessing?

Social media is a useful market research tool to:

  • Get immediate feedback on customers’ experiences and beliefs.
  • Ask consumers about potential product improvements.

Other methods are more useful if you want to:

  • Get in-depth feedback.
  • Target a specific audience within or outside your social media following.

A few benefits—and pitfalls—stand out:

You can gather data faster. Almost half of social media users access different platforms on a daily basis:

That means that companies can get fresh insights quickly. One case study revealed that social media was three times as efficient compared to tracking customer feedback via email.

You can save on research costs. Most in-app social media features (e.g. polls, emoji sliders) collect market research data without the costs associated with research panels (with the aforementioned caveat that your audience isn’t a representative sample).

But it’s not for everyone. If your social accounts don’t have hundreds of thousands (if not millions) of followers, don’t expect social media to be a viable source of market research.

If you generate 20 responses to a poll, that quantitative feedback is equally likely to mislead you as to guide you in the right direction. You’re better off focusing on qualitative methods that will help you develop rich customer personas with a small number of responses.

There is, however, one opportunity for small businesses: social listening on competing brands. If you want to understand the frustrations or desires of your target audience, use passive social media market research techniques, like those detailed below, to get access to some of the same social media research larger competitors enjoy.

Also, beware of the herd mentality. Social media users are prone to impulsive behavior, and people often model others’ behavior, which may lead to copying others’ actions on social media and reducing data accuracy (especially if, for example, poll results are visible before someone votes).

For those that can take advantage of it, there’s a dual benefit to social media market research: You gain data while also building a connection with customers.

When you let customers express their thoughts, you strengthen an emotional bond, and those who are “fully connected” with your company are 52% more valuable:

So what are the primary methods of social media market research?

Market research methods on social media

Three qualitative research approaches fit social media:

  1. Qualitative content analysis (number of likes/comments/shares). The number of Likes can be a vanity metric, but assessing the engagement rate of consumers on social media may suggest the attractiveness of a marketing message or product.
  2. Social listening. Passively gather feedback from your customers or monitor opinions about your brand or competitors.
  3. Polls/questions. Ask questions directly in social media feeds, encouraging users to share thoughts and feelings.

Here are the channels best suited to those approaches.

Which social media channels to use for market research

It makes sense to tailor your social media presence to the platforms where your audience spends time—those with the strongest followings are also your ideal platforms for research.

The State of Social report, not surprisingly, suggests that most brands use Facebook, Twitter, and Instagram:

Below are strategies and tactics to conduct social media market research on each platform.

How to use Facebook for market research

Around 97% of B2B and B2C companies use Facebook, which offers four main ways to conduct qualitative research:

  1. Polls
  2. Contests
  3. Call-to-action posts
  4. Brand mentions

1. Polls

On Facebook, posts that ask questions receive more Likes than any other type of post. It doesn’t require much time or effort to create a poll on Facebook, get valuable feedback, and analyze your data.

Not every poll needs to maintain the serious tone of academic research. For example, Starbucks created a poll about order preferences that generated 2,267 likes and 1,660 comments in 24 minutes. (Having a Facebook page with 37 million followers doesn’t hurt.)

While the post succeeded in generating engagement—a useful result apart from research—it also offered clues to how their customers perceive themselves and the language that may or may not resonate in a marketing campaign.

Facebook polls are still an option for organizations with smaller followings. The SaaS Growth Hacks group, for example, has just 12,200 members, but a poll on preference for conference call software generated over 100 responses in less than a day:

facebook poll

2. Contests

A chance to win a prize can motivate fans to provide their email addresses, send you user-generated content (e.g. photos, videos, testimonials), or offer valuable feedback about your product.

In partnership with Pinkbike, GoPro ran a “Best Line” contest with a $15,000 prize. Contest participants had to create and edit a video based on their experience, providing hours of compelling footage that both companies could market as authentic experiences with their products.

That same footage also provided insight about who their most fervent supporters were, how they used the equipment, and the most compelling narratives that customers built around the use of the product.

3. Call-to-action posts

In honor of a new product launch, M&M’s announced three flavors in a post with a call to action to ask followers to leave their thoughts in the comment section:

Notably, M&M’s made a simple poll into an open-ended question: Rather than simply gathering quantitative data, they got thousands of responses that reflected the strength of consumer sentiment and offered new content ideas, like developing a recipe that uses jalapeno M&M’s for “monster” cookies or promoting a game of M&M-based roulette:

m&ms facebook user response
m&ms facebook user response

4. Brand mentions

The most valuable insights may come from those who don’t follow your brand. Some 96% of those who discuss brands online do not follow the brands’ profile.

As Kristin Smaby explains, customers want to share their stories about brands, even if that conversation is indirect:

When customers share their story, they’re not just sharing pain points. They’re actually teaching you how to make your product, service, and business better.

One Facebook post that tags a brand can trigger an avalanche of related feedback, something ASOS experienced:

Keeping track of brand mentions—passively gathered feedback—is possible with social media monitoring tools like Mention, Brandwatch, Meltwater, Digimind Social, Brand24, Radarly, and others.  

How to use Twitter for market research

With its 280-character limit, Twitter is an efficient source of market research. There are two primary ways to collect qualitative data:

  1. Social listening
  2. Polls

1. Social Listening

Monitoring digital conversations, also known as social listening, is a method of observing customers’ behavior to learn about their thoughts regarding a company or product.

Take BellaBrava, a chain of pizza restaurants with a focus on healthy living. When the company wanted to open a new restaurant in Europe, they created a list of keywords that reflected their values (e.g. “plant-based”, “spelt flour”, “veggie”) and monitored people who were talking about pizza and pizzerias on Twitter and other social channels.

With about 450,000 relevant records, BellaBrava drilled down to 10 potential locations with the strongest market in which to open a new restaurant.

2. Polls

Twitter polls are time-limited: They end between 5 minutes and 7 days after being posted, depending on the duration set by the creator.

Once your poll is over, results can be viewed publicly, and the winning choice is shown in bold. All participants receive a common push notification from Twitter. (Companies have no control over the content of those push notifications.)

Thus, Twitter polls have a dual purpose: Creating social media engagement and offering market research. Taco Bell uses simple Twitter polls to monitor fans’ preferences:

Another poll asked followers to choose from three options:

However, avid fans didn’t limit themselves to these choices, and they started suggesting ideas in the comment section. Taco Bell later tested a variation of a new product based on those Twitter comments:

taco bell twitter feedback

Among other use cases that Twitter highlights are polls to gather opinions about trending events in real time:

drybar twitter poll on hairstyles during emmys

In the case of Drybar, a salon chain, the poll is an opportunity to tap into a moment of heightened interest in hairstyles. For other companies, like a pizza chain, a pre-game poll on topping preferences could help shape the ideal offer.

How to use Instagram for market research

Instagram has over 1 billion users, including company accounts for some 25 million businesses. There are three primary methods to collect market data on Instagram:

  1. Question stickers and polls
  2. Emoji slider
  3. Brand mentions

1. Question stickers

The Instagram Stories feature, with ephemeral content that vanishes within 24 hours, has achieved 500 million daily users. Since this content has a short lifespan, the “FOMO effect” can motivate users to pay attention and take action faster.

In July 2018, Instagram added question stickers—succinct, one-question polls for Stories. Users can not only vote but also see real-time results (admittedly, a risk for biasing feedback, too).

Within its social media mix, Sephora uses Instagram for “quick eye candy,” encouraging followers to vote on cosmetic choices and brands by embedding polls within their Instagram Stories:

sephora instagram question stickers
(Image Source)

2. Emoji slider

Instagram released the emoji slider in May 2018, adding a layer of emotional context to consumer feedback within the platform. Posts with emojis have a 15% higher interaction rate

ASOS allows followers to rate their products using an emoji slider, giving the company richer feedback than what it might get from binary polls—the sliding scale suggests a relative intensity of opinion.

For brands deploying polls, a swipe up delivers a list of participants and their answers, along with the average answer:

asos emoji slider polls on instagram
(Image Source)

3. Brand mentions

Like all large companies, Whole Foods constantly manages a barrage of satisfied and dissatisfied customers on Instagram—sometimes within the same post. Not surprisingly, unhappy customers hasten to complain about their experience:

whole foods qualitative feedback on instagram
(Image Source)

As with Facebook and Twitter, comment sections in Instagram are ready sources to mine consumer feedback, even from social media users who don’t follow your brand.

If you’re not a big brand, influencer campaigns can generate the brand mentions (i.e. source material) for market research. Actively asking for feedback as part of an influencer campaign increase the value of the investment: You get awareness and a trove of consumer feedback.

(While “influencer marketing” may seem blasé, it’s not going away: The worldwide Instagram influencer market value is estimated to be $2.38 billion in 2019; Instagram is used in 79% of all influencer campaigns; and 67% of marketers plan to increase their influencer marketing budgets in the next 12 months, particularly on Instagram.)

In 2018, Tommy Hilfiger invited Lewis Hamilton to launch a capsule collection. In partnership with the brand, Lewis worked on product design and published Instagram posts with a relevant hashtag and product tag. Since Lewis has a large, engaged following, his posts create a buzz—and an opportunity for the brand to get customer feedback.

A photo from the designer collection launch in Japan yielded 148,612 likes, but it also broached the idea of a collaboration with Net-a-Porter:

Of course, if you’re not one of the world’s most well-known fashion labels, you may have trouble securing a collaboration opportunity with one of the world’s top Formula 1 drivers.

The rise of “micro-influencer” campaigns—those targeted at local influencers with small but loyal followings—offers more opportunities for emerging brands focused on social media growth.

Conclusion

Even if you’ve never bothered to look, the most popular social media sites—Facebook, Twitter, Instagram—have data about your customers. While that data is not a representative sample of your total customer base, it is a source of unvarnished opinions from passionate fans.

If you want to get an understanding of their reasons, opinions, and motivations to buy or not buy your product, social media is a rich, public source of market research material.

There are six common methods for gathering qualitative data on social media, many of which are possible on multiple social channels:

  1. Polls (Facebook, Twitter, Instagram)
  2. Contests (Facebook)
  3. Call to action posts (Facebook)
  4. Brand mentions (Facebook, Twitter, Instagram)
  5. Question Stickers (Instagram)
  6. Emoji slider (Instagram)

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Product Lifecycle Marketing: What Matters Most at Every Stage

The classic graph for the product lifecycle is a sales curve that progresses through stages: a sharp rise from the x-axis as a product transitions from Introduction to the Growth phase; a sustained, rounded peak in Maturity; and a gradual Decline that portends its withdrawal from the market. Each stage of the product lifecycle has […]

The post Product Lifecycle Marketing: What Matters Most at Every Stage appeared first on CXL.

The classic graph for the product lifecycle is a sales curve that progresses through stages:

  • a sharp rise from the x-axis as a product transitions from Introduction to the Growth phase;
  • a sustained, rounded peak in Maturity;
  • and a gradual Decline that portends its withdrawal from the market.

Each stage of the product lifecycle has implications for marketing. But an MBA-friendly curve rarely translates to reality. The goal of product lifecycle marketing is not to match the curve but to outline what may work best now and plan for the future.

Skilled product marketers shape the curve: speeding through the Introduction, increasing the slope of the Growth phase, extending the length of Maturity, and easing the pace of the Decline.

What is product lifecycle marketing?

product lifecycle curve

Product lifecycle marketing aligns marketing efforts with a product’s lifecycle stage. Product lifecycle management includes all activities related to the product lifecycle, not just marketing. There are four stages:

  1. Introduction
  2. Growth
  3. Maturity
  4. Decline

Some iterations of the product lifecycle tweak names or add additional stages. The purpose of the product lifecycle illustration is not to debate semantics but, in a single view, to understand how product sales typically change over time. Your product lifecycle will not match it, nor should it.

Indeed, as Theodore Levitt noted decades ago, many products never make it beyond the first phase:


[M]ost new products don’t have any sort of classical life cycle curve at all. They have instead from the very outset an infinitely descending curve. The product not only doesn’t get off the ground; it goes quickly under ground—six feet under.

The benefits of looking at marketing through the lens of the product lifecycle are multifold:

  • Provides a broad understanding of how your product fits into lifecycles for the product class, form, or brand (e.g. petrol-engined cars, people-carrier, and Ford, respectively).
  • Identifies which stage you’re in to help you understand what you need to communicate and how to do so persuasively.
  • Spots the early signs of a pending transition to a new stage and suggests how your marketing campaigns should accommodate that change.

Of course, none of that matters if you can’t push your product past the Introduction phase.

1. Introduction

The Introduction stage is when the product first comes to market. It may include or—for those who want a more granular division of lifecycle stages—be preceded by a Development stage.

How to identify if you’re in the Introduction stage

If your product hasn’t yet launched, it’s obvious that you’re in this initial phase of the product lifecycle.

For recently launched products, marketers in the Introduction stage focus on creating  awareness and motivating potential buyers to consider a product—to be in the conversation when potential buyers consider their options.

What marketing needs to accomplish during the Introduction

  • Create product awareness and trial

The introductory stage is rarely profitable:

profits are negative or low because of the low sales and high distribution and promotion expenses [. . .] Promotion spending is relatively high to inform consumers of the new product and get them to try it. Because the market is not generally ready for product refinements at this stage, the company and its few competitors produce basic versions of the product.

break even point in product lifecycle
Introduction phases of the product lifecycle are rarely profitable. (Image source)

Unlike successive stages, there’s no benefit to prolonging the Introduction phase. As a result, the primary marketing goal is to roll out campaigns that move quickly past Introduction to Growth: To build enough awareness that consumers know of the solution (if it’s a new market) or know of your company when considering the solution (if it’s an established market).

Research needs

Without a wealth of post-purchase consumer feedback, marketers in the Introduction stage may rely on user research conducted by others in the company, like the product management team. This may include data from test marketing or initial market research.

Questions marketers need to answer include:

  • Why did they create this product?
  • What problem does it solve?
  • How big is the market?
  • Who are the intended purchasers?
  • Which potential users or companies are influential in this space?

The answers help define which marketing messages and channels will be most influential.

As Lucas Weber notes in his product marketing course, it’s also essential to get marketing and sales teams’ buy-in for the product before they begin working on campaigns. Teams need to believe in what they’re selling before they can pitch it persuasively.

Questions marketing needs to answer

What is your go-to-market strategy? A go-to-market strategy identifies how the company plans to move through the Introduction stage and catalyze Growth. There are three main options, with hybrid options also possible:

  • Sales led. Customer acquisition costs can be high, and growth may require large sales teams. In the Introduction period, a sales-led strategy may work if the goal is to gain adoption by a small number of influential users or companies.
  • Marketing led. Marketing-led strategies often scale more efficiently than sales-led strategies, but rising PPC costs—especially in established markets—can price-out startups in some channels. A marketing-led strategy requires strong communication and data-sharing between marketing and sales teams—true demand generation.
  • Product led. For SaaS companies, product-led strategies have the potential to bypass the shortcomings of the other two. Free-trial or freemium offerings can scale awareness while limiting marketing outlays.

For marketers, the go-to-market strategy helps determine the primary call to action: A sales-led strategy may be a demo request, whereas a marketing-led strategy may focus on email signups, and a product-led strategy asks prospects to start a free trial.

free trial cta
For product-led companies like Ahrefs, a free-trial signup is the primary call to action.

How long is the expected product lifecycle? Not every company is preparing for a full product lifecycle. VC-backed companies that focus on user adoption—at the expense of profitability or even revenue—may never plan for phases beyond Introduction and Growth.

The latter phases become someone else’s problem, as they did with WhatsApp. The company focused on driving user adoption, and Facebook bought the company in 2014 without knowing how to monetize users. Zuckerberg felt that any platform with a half-billion users had potential, even if that required a $19 billion bet. (By 2018, WhatsApp had 1.5 billion users—but still no monetization.)

Additionally, products that require more market development may linger longer in the Introduction phase:

A proved cancer cure would require virtually no market development; it would get immediate massive support. An alleged superior substitute for the lost-wax process of sculpture casting would take lots longer.

Other products that qualify as fads or fashions expect shorter lifecycles—and sharper slopes between each phase:

How should you price your product? Products in the Introduction phase operate along the spectrum between two ends of a pricing strategy. Each has strong implications for the target audience and which go-to-market strategy may be most effective:

  • Skim the cream. Seek out the early adopters who are price insensitive. The strategy is to recoup product investment costs quickly at the expense of larger but more gradual profits in years later. A high price point also invites competition, unless a product enjoys patent protection.
early adopter cell phone
In Wall Street, Gordon Gekko is the quintessential price-insensitive early adopter for a product that was then part of an emerging market. (Image source)
  • Rapid market penetration. A lower price point may increase adoption and keep competition at bay for longer, but also takes longer to achieve profitability. Low pricing has other risks, and faster market penetration isn’t always better:

“Some products that are priced too low at the outset [. . .] may catch on so quickly that they become short-lived fads. A slower rate of consumer acceptance might often extend their life cycles and raise the total profits they yield. The speed of market penetration depends on the availability of marketing resources—a higher potential speed should increase the rate of adoption.

Signs you’re headed to the Growth stage

When marketing conversations focus more on competitors—rather than creating a market or earning consideration among potential buyers—you’re headed toward the Growth phase of product lifecycle marketing.

Another sign: You’ve moved past the initial product launch and must consider how to promote product updates to an existing consumer base or use them as a means to acquire new buyers.

2. Growth

The Growth stage is the period with the sharpest increase in sales. It includes a significant boost in market presence, the addition of new product features, and a greater emphasis on positioning relative to the competition.

How to identify if you’re in the Growth stage

Levitt explains one way to determine if your company is in the Growth period: “Instead of seeking ways of getting consumers to try the product, the originator now faces the more compelling problem of getting them to prefer his brand.”

If you’re in an emerging market, you may lure new competitors into the field. If you’re in an established market, you may go head-to-head with industry stalwarts more often.

Importantly, Levitt goes on to note, competitors shape marketing campaigns during the Growth stage:

The presence of competitors both dictates and limits what can easily be tried—such as, for example, testing what is the best price level or the best channel of distribution.

There is one benefit of increased competition: Your competitors’ campaigns may help increase overall demand for your product class, which allows marketing teams to shift resources back toward promoting your product.

What marketing needs to accomplish during the Growth stage

  • Maximize market share

During the Growth period, the marketing team works to widen their audience and build brand preference.  

Research needs

What have you learned about your consumers? By the Growth stage, you should have enough consumer data to begin building marketing strategies based on consumer experiences with your product, rather than consumer attitudes or behaviors related to the problem your product solves or competitor offerings.

Qualitative user research has many sources:

That research, in turn, affects marketing plans:

How does your company and product compare to competitors? Also during the Growth phase, you’ll dive deeper into competitor analyses to determine how your value proposition compares and which aspects of your product or brand will help differentiate.

Questions marketing needs to answer

How are you positioning your product? If your current product is more advanced than competitors, you may be best positioned to earn a dominant market share—which means pushing more resources into current campaigns (at the expense of near-term profits).

If you’re product development lags behind, you may have more success competing on value, or by developing a brand—even a brand-owned term—that makes an emotional appeal to consumers.

conversational marketing branding
Drift built a brand identity—and sustained growth—on “conversational marketing.”  

How will you pitch new product features? To deploy the right marketing strategy, you need to know the rate of product development—how (and how often) the product team rolls out updates. Big updates usually require a big marketing push. If your product team pushes big releases infrequently, marketing teams need to plan in advance:

  • Is a product update big enough to justify its own ad campaign? Will you need a dedicated budget, content, or landing pages?
  • Is the update best suited to attract new customers or retain existing ones?
  • Does a particular update target a subset (or new cohort) of your target audience? Do you need to source tailored quotes or case studies to make a persuasive case to that audience?

In contrast, for smaller updates, marketing may focus on in-product messaging. In SaaS platforms—especially product-led ones—that often includes tooltips, notifications, or tutorials that appear within the product’s UI.

Does the sales staff have what it needs? Many companies in the Growth stage are adding sales staff to reach new markets or increase penetration in existing ones.

Marketing is often in the middle: learning about product development from product managers and translating that knowledge into persuasive collateral for sales teams.

Signs you’re headed to the Maturity stage

Growth transitions to Maturity as the rise in sales (not profits) levels out. By the end of the Growth stage, most people who want your product have it (or a competitors’), and the focus shifts toward winning customers from competitors and making marketing more efficient.

3. Maturity

The Maturity phase represents the height of a product’s adoption and profitability. The height of the apex depends on past achievements during the Growth period; the length of the Maturity phase depends on how long marketing can sustain the product’s dominant market position.

How to identify if you’re in the Maturity stage

“The first sign of its advent,” Levitt argues, “is evidence of market saturation. This means that most consumer companies or households that are sales prospects will be owning or using the product.”

In practical terms, it means that most “new” customers are not new to your product class but, perhaps, new to your brand—they’ve switched from a competitor. Conversely, many of your losses are wins for your competitors.

switch to sprint homepage
switch to verizon homepage
switch to cricket wireless homepage
A clear sign of market saturation? Every company is pitching a switch.

What marketing needs to accomplish during the Maturity stage

  • Maximize profit while defending market share

Levers that worked during the Introduction and Growth periods have a lesser impact during the Maturity phase. More competitors and an established market likely mean that differentiation in product features declines, and you may have competitors at both ends of the spectrum—those who offer the product more cheaply and those who offer a higher-end version.

One lever doesn’t weaken: brand. Companies like Drift have risen to the top of a crowded market, in part, because of a strong brand identity—in this case, one centered on “conversational marketing.” For other organizations, like HubSpot, which owns “inbound marketing,” the brand has helped maintain their status as a market leader.

In short, as differentiation based on product features becomes more difficult, brand becomes a powerful and stable differentiator—essential for companies that seek a long Maturity period.

Research needs

What does market and consumer research suggest? In a mature market, the key to extending the (profitable) lifespan of a product is to understand the catalysts that lead to Decline.

Market and consumer research, which, in a mature market, may be conducted by third parties like Gartner or Forrester, can help suggest where the market is headed. That research may include which demographics are likely to drop off first (or stay the longest), helping to steer marketing campaigns toward higher-value consumers.

What is the sales staff learning? A mature product is more likely to have a large sales staff with deep consumer knowledge. (The research methods outlined in the Growth phase are still valuable.) Their learnings can help you understand which aspects of your product are stickiest or which decision points consumers use to choose your product or a competitors’.

Questions marketing needs to answer

How are you building or sustaining the brand? While early phases may focus on differentiation via product features (or, if you were the only company, not differentiating at all), the Maturity phase rewards companies that can differentiate their product on brand.

Part of that effort, Weber details, comes down to the balance between persuasive vs. descriptive marketing. A greater focus on brand will also yield a greater focus on persuasive marketing—campaigns that make an emotional rather than rational appeal to consumers.

What is your most profitable demographic? Prolonging the Maturity period also requires an increase in marketing efficiency—greater efficiency sustains or grows the profitability of a product, even as total sales are flat.

Efficiency could come from shifting marketing resources toward the most valuable demographic, or via promotion of the most profitable versions of a product (e.g. basic vs. enterprise-level packages).

extending maturity phase product lifecycle
Clever marketing and a strong brand can extend the maturity phase. (Image source)

How can you prolong the Maturity phase? Marketers can extend the Maturity period in several ways:

  • Identifying new demographics for the product. Is there a subset of potential users that, if marketing reframed its messaging, could become viable prospects?
  • Identifying new uses for the product. Bubble wrap, the slinky, Coca-Cola—the list of products known for their secondary uses is long. You probably won’t discover an alternative for your product that generates decades of exponential growth, but you may find a way to prolong the Maturity phase for a year.
  • Hope a new style or fad comes to the rescue. The Rubik’s Cube seems good for a once-a-decade revival:
google trends rubiks cube
While a fad can rescue a product headed toward Decline, it’s often out of marketers’ control.

Signs you’re headed to the Decline stage

Levitt identifies the symptoms of a product transitioning from Maturity to Decline:

Production gets concentrated into fewer hands. Prices and margins get depressed. Consumers get bored. The only cases where there is any relief from this boredom and gradual euthanasia are where styling and fashion play some constantly revivifying role.

A move to the Decline phase, however, doesn’t justify marketing complacency.

4. Decline

The decline phase begins as product sales and profits shrink. Still, an effective marketing effort can make a decline more gradual, earning additional sales from “laggards” and giving a company more time to pivot to its next effort.

How to identify if you’re in the Decline stage

Is the market consolidating into a few major players? Are margins shrinking? Is the product viewed as a commodity? All are signs that you’ve reached the Decline phase in your product’s lifecycle.

What marketing needs to accomplish during the Decline stage

  • Reduce spending and milk the brand

Research needs

Who are the laggards? Identify the late-adopters among your buyers (or potential buyers). The addition of a new demographic or expansion an existing one can slow the downturn in sales.

What are the most expensive marketing channels? A historical review of the most expensive marketing channels—the efforts with the highest customer acquisition costs—aids planning for pending cutbacks to product promotion.

Questions marketing needs to answer

How can you milk the brand?

An effort to milk the brand spends brand capital to generate near-term profits. Apple knows that iPhone sales are in decline, which is why they announced in 2018 that they would no longer report unit sales. They continue to report unit profits.

Apple is “milking the brand”—charging customers more because they can—and easing the impact of a reduction in iPhone sales, due in part to market saturation:

iphone sales chart
Apple stopped reporting unit sales as the iPhone passed through the Maturity phase to Decline. (Image source)

How can you reduce marketing spend? The most proactive marketing effort in the Decline phase is to reduce marketing spend. A reduced spend aligns marketing investment with a product’s reduced sales and profitability. A failure to reduce marketing spend risks sharpening the slope of the Decline.

When will the company harvest or withdraw the product? Harvesting the product ekes out the last bits of profitability. Harvesting reduces or eliminates investments in product development and promotion to lower costs.

If you don’t know when the company plans to withdraw a product entirely, you could waste valuable resources on a marketing campaign that will get cut short before it can return sales—spending thousands on the acquisition of leads who may never get the drip campaign or follow-up call they need to become clients.

Conclusion

Levitt suggests that “the best way of seeing one’s current stage is to try to foresee the next stage and work backwards”:

  • If you’re just starting out, how will your value proposition and go-to-market strategy operate in a crowded marketplace, or when you’re product offering is competitive with industry leaders?
  • If you’re in your Growth phase, are you differentiating on more than just features? Are you building a brand that can be a dominant force with a long Maturity period?
  • If you’re coasting in Maturity, what can you do to stave off Decline? Which market changes are likely to erode profitability in your product? Can you build efficiency into your demand generation campaigns to extend profitability?

Contrived as it may be, the product lifecycle forces a proactive approach: You know generally what’s coming next, the research you need to make data-driven decisions, and the questions you must answer to execute timely and profitable marketing campaigns.

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How to Raise Prices for Existing Customers

Your current customers will never be excited about paying more. But that’s not why raising prices is so difficult. Instead, poor planning is to blame: Companies neglect to plan a price increase until there’s a financial squeeze or, for the thirtieth time, a customer confides that, “You know, you really ought to charge more.” What […]

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Your current customers will never be excited about paying more. But that’s not why raising prices is so difficult.

Instead, poor planning is to blame: Companies neglect to plan a price increase until there’s a financial squeeze or, for the thirtieth time, a customer confides that, “You know, you really ought to charge more.”

What typically follows is a hasty price bump that’s detached from product value and communicated incoherently. To raise prices effectively, you need a strategy that limits risks—and maximizes rewards—of a price increase.

What’s at stake: The exponential impact of a price increase

Many focus on the risks of a price increase: What if you lose customers? What if it’s harder to close sales or generate leads? But the risks of not increasing prices may be equally large—or larger.

As Price Intelligently shows, static pricing gradually widens the gap between price and value, for you and your customers:

gap between price and value
With static pricing, product value outpaces the cost to consumers. (Image source)

A fixed pricing structure not only reduces potential revenue—and, therefore, the money available to invest back into the product—but also impacts perception: Increasingly, customers will see your product as the “cheap” option.

Over time, the potential gain (or loss) in revenue can have an exponential impact. An oft-cited McKinsey report on the S&P 1500 suggests that a 1% increase in price can yield an 8% increase in profits:

mckinsey increase price and profits
A 1% increase in price can yield an 8% increase in profits, according to McKinsey. (Image source)

That impact outpaces other business changes:

Pricing right is the fastest and most effective way for managers to increase profits [. . .] a price rise of 1 percent, if volumes remained stable, would generate an 8 percent increase in operating profits (Exhibit 1)—an impact nearly 50 percent greater than that of a 1 percent fall in variable costs [. . .] and more than three times greater than the impact of a 1 percent increase in volume.

Some have challenged the universal applicability of that study, but other studies reinforce the outsized impact that a price increase has on profitability:

A third study shows the potential impact of more aggressive price increases: A 5% price rise increased profitability by 22%, more than equivalent changes to other “tools of operational management”:

If a 1% price rise can increase profits by 8–11% and a 5% rise increase profits by 20%, what about a 10% increase? Or 20%? When do returns diminish?

How much can you expect to increase prices?

The answer, of course, depends on your product and buyer (including which buyer among your many). Research comparing price increases to consumer happiness shows an unsurprising trend: the greater the price increase, the greater the impact on customer happiness.

price change vs consumer happiness
(Image source)

The lesson, as Price Intelligently points out, is not that price increases are bad but that incremental rises—thoughtfully planned, effectively communicated—reduce the risk that you’ll upset loyal customers.

One reason companies mistakenly make a big jump? A low historical price.

The starting point for every price increase

Every proposed price increase is relative to the old one. The contrast between the two impacts consumer perception. Applied more broadly, this principle is known as anchoring.

Anchoring is often used in pricing pages that pitch several options, with the highest option serving as an “anchor” to make the others seem more reasonable:

price page anchoring

For price increases, the anchor is the past price. And a low starting price limits your ability to raise it—even if you charge far less than your competitors.

As Price Intelligently explains:

If you anchor people at a low price and raise it later, then no one will see it as getting new value. They’ll see it as gouging.

You will lose the customers you win when you try to raise prices because they will have been acquired on faulty premises.

You can catch up with competitors who charge more, but you may need to do so over time. The challenge is most acute for companies with a freemium model: Users expect to pay $0, and starting to charge them—even a nominal amount—requires clearing a high psychological hurdle.

In addition to below-market pricing, there are other signs that it may be time to increase your rates.    

5 signs that it’s time to raise prices

1. Six months have passed.

Price Intelligently recommends one to two price changes each year:

The companies we’ve seen with the most success with revenue and adoption are reviewing pricing at least once per quarter and making tweaks or changes every 6 to 9 months.

Not every “pricing” change involves a straightforward increase: You can expand or remove pricing tiers, reduce or eliminate discounts, or make other changes, as detailed later.

2. You’ve added new features that consumers value.

New features should increase the perceived value of your product. As you roll out new features—and, in turn, more value—your pricing should keep pace.

As OpenView’s Kyle Poyar explains:

When you invest in creating new features and driving more usage of your product, it creates an opportunity to extract some of that added value in the form of higher prices.

Feature value should be determined based on consumer usage and feedback, not a company’s perception (or how much they’ve sunk into development). Customers pay more to get more value, not to increase your profits.

3. Everyone signs up.

New customers can help determine whether current customers would tolerate a price increase.

As Justin Gray writes, a 100% close rate isn’t cause for celebration—it means you’re not charging enough, especially if there’s no pushback or negotiation on pricing throughout the sales process.

If customers are surprised—even embarrassed—by how little you charge, you should charge more. For his consulting work, Karl Sakas targets a 60% close rate. He’s used price increases to bring that rate down from 80%:

During coaching sales calls, I’m seeing a somewhat lower close rate than before—in line with my 60% target, and less than the 80% I was seeing before. This confirms that I was under-charging. (If the close rate fell below 50%, I’d have over-reached on the price increase.)

4. You create ROI well beyond what you charge.

Successful price increases depend on matching cost and value. If you know, for instance, that your software saves a company hundreds of hours of technical labor—but costs just $49 per month—you can make a strong case for a price increase.

OpenView suggests that SaaS companies can capture 10–20% of their economic value, a baseline figure of what you may be able to charge if you can demonstrate ROI clearly.

5. You need the revenue.

This is the worst-case scenario: You need to reverse-engineer a consumer benefit to meet business goals. It’s also one of the most common scenarios.

Because the starting point is inverted—you’re making changes based on a company need not a consumer benefit—be exceedingly cautious with the scope of the price increase and how you communicate it.

Transparency is often the best policy—such as when Rad Power Bikes announced a price increase due to a 25% rise in import tariffs—but consumers are less interested in your problems than those you solve for them.

Ultimately, price increases have a broad impact, not just for consumers but throughout your company.

The company-wide impact—and unexpected benefits—of raising prices  

Even within your company, higher prices can be a stressor. They may:

  • Reduce close rates for sales staff, even if those reduced rates are desirable.
  • Make it harder for marketing teams to hit lead targets.
  • Temporarily reduce revenue, which small companies may not survive.  

Yet an announcement of forthcoming price increases can have unexpected benefits:

  • Existing customers are motivated to upgrade or expand their relationship before the change takes place—higher prices add urgency to subscription upgrades and renewals.
  • Current leads are motivated to purchase now.

Regular, well-communicated price increases can serve as a slow burn of urgency—every price has a half-life, and the product will always be cheaper this year than the next. (Some companies, Salesforce included, build annual price increases into their service-level agreements, often in the range of 5–7%.)

For agencies or consultants with limited hours to sell, a price increase can replace older customers with new ones who are happy to pay a higher rate. That’s exactly what Sakas experienced:

As year-end approached, I created a special offer for current clients: If they pre-paid for coaching in 2018 before the end of 2017, they’d keep the old rate (dating back to late 2015) for those pre-paid months in 2018, and then they’d pay the higher monthly price after that.

Nearly everyone opted to pre-pay at least a couple months, and a couple pre-paid an entire year.

The clients who didn’t pre-pay were typically ones who weren’t maximizing their coaching support. During the process, I’d recommended they switch to on-demand support (albeit at a less-responsive SLA, since they weren’t making the same commitment).

This dropoff created slots for new coaching clients at the higher price point, which I’ve since filled.

Sakas also noted that, for some clients, spending the extra money in the current calendar year allowed them to claim a tax deduction that effectively discounted the new price by 45–60%.

Whatever you do, don’t be Netflix.

Case study: Netflix’s “lost year” and a shot at redemption

In 2011, Netflix screwed up. Their well-chronicled debacle briefly split their nascent streaming service from the “cash cow” of DVD delivery. The separation of services effectively raised prices for consumers by 60%.

That poorly planned price increase cost Netflix 800,000 subscribers and plunged their stock price by 77% over four months. The failure resulted from several mistakes:

  • CEO Reed Hastings ignored others’ advice.
  • Netflix mistook a consumer preference for streaming content for a willingness to eliminate a DVD-based option.
  • The changes—and subsequent clarifications—were poorly communicated.

Netflix has since increased prices to far less outrage on several occasions, including last week. Every price change still makes headlines, but the narrative has shifted.

Instead of price increases being reported as cash-grabs or attempts to shove consumers into the future, they’re explained as necessary investments in the consumer experience.

Take, for example, Netflix’s statement about their most recent increase:

We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members.

Media outlets have covered the price increase exactly as Netflix wants. The write-ups are pseudo-advertisements, showcasing the most popular programs and reinforcing Netflix’s commitment to consumers:

washington post netflix price increase
netflix price increase commentary
netflix price increase 2019
cnn netflix price increase

The lesson was hard-learned but learned nonetheless. Here’s how to skip the painful part and get it right the first time.

The process of raising prices for existing customers

A solid process for increasing prices limits risk. If you own the project, and someone should, ”your job is to hedge as much risk as you possibly can going into a live test.”

Price Intelligently’s process for changing prices spans several weeks:  

price increase strategy
Price Intelligently notes that most companies fall short during the middle phase. (Image source)

Below, we’ve combined their process with others that support well-planned, well-executed price increases.

1. Conduct initial research

Research your past price increases. What happened when you did? How many subscribers or repeat buyers did you lose? If lifetime value rose and customer acquisition costs decreased, Jeanne Hopkins argues, you probably got it right.

Historical research suggests what to repeat or avoid, and helps you gauge consumer expectations—years of single-digit prices increases followed by a double-digit rise, for example, may not go over well.

Compare yourself to competitors. Will a price increase move you into a new tier? Are you a mid-range provider that’s trying to get into the high-end market? You’ll need to adjust your value proposition and communicate that shift appropriately. (See Step 4.)

On the flip side: Are you the value option? A price increase may motivate consumers to consider newly price-competitive alternatives.

Ask the right questions. Dan Turchin, a VP of Growth Strategy at BigPanda, takes an open-ended approach to consumer research when preparing for a price increase:

We’re trying to have enough conversations with customers to get feedback on how they associate value with BigPanda and how to translate that into the most simple, transparent, logical way to consume the value.

Those conversations may come from product advocates in Slack groups or via customer surveys. In addition to open-ended responses, you can conduct quantitative research on price sensitivity.

Determine the price sensitivity. Price sensitivity is

a measure of the impact of price points on consumer purchasing behaviors, or in other words, it’s the percentage of sales you will lose or gain at any particular price point.

Because consumers are poor judges of how much they’re willing to pay—as they’re poor estimators of why they make decisions— there are two primary ways to gauge price sensitivity:

1. Price Laddering. On a scale from 1 to 10, customers rate their willingness to buy a product at a particular price. If they answer below a 7 or 8, the price is lowered, and they’re asked the same question again.

While the process can identify a price point at which consumers say they’re likely to buy, it can also introduce errors: Respondents may view the exercise as negotiation and suggest they’re willing to pay less than they actually are.

2. Van Westendorp Price Sensitivity Meter. Respondents are asked to price a product, with each answer having one of four implications:

1. At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)

2. At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)

3. At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)

4. At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

The resulting data charts potential price points:

van westendorp price meter chart
(Image source)

The Vanwestendorp Price Meter, unlike laddering, also reveals the price point at which consumers may view your product as cheap—where brand equity begins to erode.

Whichever method you choose, gather price sensitivity data for different cohorts—your enterprise SaaS clients may have a lower sensitivity to changes than your small business clients, or the structure of your changes (e.g. user limit) may affect one group significantly more than another.

Once you’ve done the research, you can work on your strategy.

2. Develop a strategy

Your pricing strategy identifies which pricing levers you plan to pull and by how much. Initial research— on the product features consumers value most and what they’re willing to pay for them— should help guide the conversation.

If you’re simply increasing the sticker price, the guiding principle is to match value to cost. Finding that balance is easier if you have data on the ROI from your services; failing that, use qualitative responses and price sensitivity research.

As detailed earlier, however, there are other, indirect ways to raise prices:

  • Increase restrictions on a freemium or free-trial version. The New York Times has reduced the monthly number of free articles available to consumers from 20 to 10 to 5, essentially creating a new paid tier for readers of more than 5 articles.
  • Shift benefits from one tier to another. Removing benefits from existing subscribers (by shifting them to a higher-priced tier) is risky but, nonetheless, an option. It may be easier to do if an entry-level tier has an exceptionally low price point or a feature gets a massive upgrade.
  • Use a new feature to create a new tier. Just created an API? That benefit alone may be strong enough to create a premium tier that offers unlimited access.
  • Reduce or remove discounts. There’s often a gap between the list price, invoice price, and pocket price. Reducing or removing discounts that are costly but not influential can passively increase prices.
pocket price waterfall
A pocket price waterfall shows all the discounts that occur between a list price and the final “pocket price” a consumer pays. Reducing or eliminating those with little influence in the sales process can passively increase prices. (Image source)

The most common strategy for managing price increases for current customers is grandfathering. It was the choice of nearly half of SaaS companies surveyed by Price Intelligently:

Still, it represents a “common practice” more than a “best practice.” Too often, grandfathering is the preferred solution because it solves an internal problem—a failure to plan and communicate a price change effectively.

Better alternatives involve an element of grandfathering but, over time, align price and value:

  • Limited access. Grandfathered customers don’t get access to new features. This strategy has a shelf life—without access to product upgrades, you won’t be able to add value.
  • Discounted upgrade. Current customers get a discount if they upgrade. The discount may apply for a matter of months or indefinitely. The latter option has the same shortcomings as standard grandfathering (while reducing revenue loss somewhat).
  • Delayed upgrade. Current customers avoid a price increase for a period of time. For companies with annual contracts, this makes sense—consumers keep the current price for the life of their contract, and the renewal aligns them with the new pricing.

Rather than settling on a single option, you can also provide customers a choice:

For instance, they could stay at their current plan at a higher rate, or choose to downgrade plans and keep the rate they’re paying today, or if they commit within 30 days they could get 10% off a better plan than they have now. This takes some of the sting off and puts the customer in the driver’s seat.

(The value of choice—even between two imperfect options—is not insignificant. A choice of meal options was essential to morale during polar expeditions.)

3. Get qualitative and quantitative feedback

Once you’ve settled on your strategy—which aspects you’ll change, by how much, and how you’ll manage current customers—you can estimate its potential impact by running the numbers and floating the plan with a group of consumer advisors.

Run the numbers. Finding out how the changes will affect your customers, Zendesk learned, is tricky if you have usage-based pricing.

In 2010, Zendesk rolled out a price increase that tripled costs for some clients. But cost wasn’t the only concern: The change in plan structure left clients feeling coerced into annual (rather than monthly or quarterly) billing plans. That suspicion compounded difficulties.

When commenting on the fallout to TechCrunch, Zendesk CEO Mikkel Svane cited reasons that could’ve been persuasive as an advance rationale but appeared defensive as an ex-post-facto justification:

This is the first time EVER that we have increased pricing. But we have added new functionality to the service for every week for the last two and a half years.

And today we’re launching a lot more functionality for knowledge base and community support [. . .] Zendesk is investing heavily in new features and our customers will continue to experience great things with Zendesk.

We will deliver on our promise. Are we the cheapest show in town? No. But we do think that we have an excellent offering for almost every budget starting at $9 per agent seat. And we do offer to grandfather our existing customers for one additional year at their current price point with all of their current functionality grandfathered indefinitely.

Consider how edge cases may affect perceptions of fairness: If an increase won’t kick in until an annual contract renewal comes due, what about those whose contracts renew next month?

That’s one reason to announce price increases before they take effect: An announcement that renewal fees will go up in six months gives everyone time to budget accordingly.

Talk with your insiders. Run the new pricing plans by your customers to assess their reaction. Price Intelligently, which recommends talking with at least 20 current customers, emphasizes the importance of asking the right questions:

Remember that this is a sanity check, as customers individually will have an incentive to say prices are too high. In that light, don’t ask open ended questions like, “what do you think?” Ask questions that get to a point about your most worrisome issues (does this make sense, what questions do you have, etc.)

If you’ve gotten something terribly wrong, they’ll tell you—and you’ll be able to fix it before it’s too late. You may also learn which aspects of the price increase are the most persuasive or important to communicate.

4. Create a communication plan

This was a common refrain: Be transparent about why the price is going up. If you feel compelled to obscure the reason—or if it takes thousand-word essays and charts to justify it—that’s a sign you don’t have a strong case.

Still, focusing on key points can help justify an increase:

  • The length of time since the last price increase;
  • The value you’ve added to your product or service during that time;
  • If you have service limitations (e.g. consulting hours), the increase in demand.

“Prepare to overcommunicate,” Sakas cautioned. “I gave current coaching clients ~5 months’ notice [. . .] My goal was to honor existing commitments and reward loyalty—but also so current clients wouldn’t be surprised later.”

Be clear about how the changes will affect current customers, especially if you plan to grandfather some in.

5. Gather and adjust based on post-launch feedback

Finally, ask for feedback. If you’ve failed to consider a customer segment or are likely to face backlash, the sooner you can learn about it—and devise a solution—the better.

One way to measure feedback is to monitor consumer behavior. A decrease in time-to-purchase or onboarding flows, Turchin explained, signals a successful price increase:

We measure sentiment on pricing mostly by the adoption cycle – how quickly a customer gets into production and how quickly the deployment grows. We’re definitely seeing onboarding times and time to incremental purchase go down.

After you complete a price-increase cycle, keep going. Review your pricing every couple of months. Not every review of pricing will mandate an increase, but every review will help keep your prices aligned with your value. The longer you ignore it, the harder it becomes to realign the two.

Conclusion

“Anyone can raise prices,” writes Patrick Campbell. “But raising prices and customer satisfaction requires a strong understanding of your customers’ valued features and willingness to pay, which you get from your research.”

Increasing prices is terrifying if you don’t know what your consumers value most or how much they value it.

But ignoring pricing isn’t an option. The longer you delay a justified price increase, the worse your options become—it will take longer to align product price and consumer value, or you’ll take greater risk to try to do so more quickly.

Even if you face an urgent need to raise prices, remember: Thorough research and clear communication are equally essential.

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Business Apologies: What You Should (and Shouldn’t) Do

You start your day with a check-in on social media. You spot a negative review on your Facebook page. Do you: Ignore it and hope nobody sees it? Respond? Spoiler alert: Your answer should be the latter. And it’s not just because 88% of consumers are less likely to purchase from companies that leave complaints […]

The post Business Apologies: What You Should (and Shouldn’t) Do appeared first on CXL.

You start your day with a check-in on social media. You spot a negative review on your Facebook page. Do you:

  • Ignore it and hope nobody sees it?
  • Respond?

Spoiler alert: Your answer should be the latter. And it’s not just because 88% of consumers are less likely to purchase from companies that leave complaints unattended.

Apologizing is a human behavior that acknowledges and resolves an issue. In business, it’s more than learned behavior; it’s an essential part of a growth strategy.

That’s especially true for SaaS companies and others who maintain long customer relationships and obsess over churn. Eventually, you’ll make a mistake, but you don’t need to lose a customer over it.

Here’s what to do.

Why should businesses apologize?

For one, apologies display empathy–something experts credit as a force that drives business forward. That could help secure higher business deals and drive company growth.

Roger Dooley explains the connection between the two:

As I describe in Apologies Really DO Work, behavioral economist Dan Ariely conducted a study in which subjects were overpaid a few dollars for performing a simple task.

Almost all returned the extra money.

But, if the experimenter exhibited rude behavior (taking an irrelevant cell phone call in the middle of the experiment), most of the subjects said nothing and kept the money.

Apparently, they were punishing the experimenter for his bad behavior.

Even if you face a legal dispute—or are trying to keep a customer complaint from reaching that threshold—apologies can help.

Jennifer Robbennolt, a Professor of Law and of Psychology at University of Illinois, gauged the reaction of survey respondents when they heard an apology throughout hypothetical injury-settlement cases.

Her report concluded:

The apology fulfills some of the goals that triggered the suit, such as a need for respect, to assign responsibility and to get a sense that what happened won’t happen again. So receiving an apology can reduce financial aspirations and make it possible for parties to enter into discussions about settlement.

From a day-to-day perspective, apologizing to disappointed customers can:

  • Reduce returns.
  • Increase brand reputation.
  • Retain loyal clients.
  • Increase recurring revenue.

Those apologies often have their origins in lesser mistakes.

What should you apologize for?

You’ve heard that “the customer is always right.” Not everyone agrees. Pete Fader, Professor of Marketing at the University of Pennsylvania, shares why in his book Customer Centricity:

Not all customers deserve your company’s best efforts. And despite what the old adage says, the customer is most definitely not always right. Because in the world of customer centricity, there are good customers…and then there is everybody else.

Still, there is a time and place where apologizing is critical: Instances when you’re responsible for poor customer or user experience–something that 55% of customers are willing to pay more for (if the experience is guaranteed).

It’s not always easy to identify instances when your business is at fault compared to times when a customer’s demands are unfair. Still, there are clear-cut cases:

1. Product failure: Most products have errors. Whether it’s a bug, system flaw, or design mistake, it’s your duty to apologize to customers who’ve experienced it.

When Moz’s SEO tool wasn’t working as expected, they penned a public apology on their blog to say sorry for the failures, why they happened, and what they did to fix it:

moz apology

2. Slow delivery times: When it comes to managing ecommerce logistics—coordinating online orders, fulfilment, and shipping—hiccups are inevitable. Here’s the largest ecommerce website on the globe, Amazon, apologizing for delayed shipping:

3. Poor customer service: A report by Forrester revealed that 23% of B2B CMOs view improving customer experience as a top-three objective. That highlights a potential gap between consumer expectations and business execution—which constantly refires the need for an apology.

Here’s ZocDoc apologizing to their customer after an appointment was unexpectedly cancelled. They’ve sent a personalized email with an incentive to continue using their service, and ask for feedback to help prevent future cancellations:

4. Hidden costs: If you purchase something online, you expect the delivery driver to arrive at your door and deliver the item you ordered at the price you paid—no questions asked. Hidden or unexpected costs anger consumers.

Anything from automatic membership renewals to import fees for overseas customers could inspire a negative review tied to your brand—like this dissatisfied Kylie Cosmetics customer:

bad review unexpected costs

5. Low-quality products or services: Consumers are increasingly demanding. That makes it only more likely that your product or service will fail to meet their demands. Those demands extend to the earnestness of the apology, too.

When a United Airlines passenger was “dragged” off a flight, CEO Oscar Munoz initially issued a PR-driven, tick-the-checkbox apology:

united airlines first apology

As public resentment grew, Munoz followed up with another, more candid mea culpa:

united airlines second apology

6. Moral or ethical shortcomings: According to Nielsen’s Global Corporate Sustainability report, 66% of global consumers are willing to spend more on a product if it comes from a “sustainable brand,” a component of which includes a company’s “commitment to social value.”

ConvertKit faced backlash when they announced a planned name change to “Seva.” They didn’t realize the strong religious ties the word had, and customers felt using it as a name was morally wrong. ConvertKit reverted to their original name and penned a lengthy apology to explain the misunderstanding:

Every company will make one—if not more—of those mistakes periodically. So what do you need to do to handle it right the first time?  

How businesses should apologize

Scientific research has identified the key components for any apology:

  1. Expression of regret
  2. Explanation of what went wrong
  3. Acknowledgment of responsibility
  4. Declaration of repentance
  5. Offer of repair
  6. Request for forgiveness

Here’s how to put them into practice for a business apology.

1. Apologize even if it’s not your fault.

Saying sorry is often portrayed as weakness, and, further diminishing the incentive, research has found that refusing to apologize can actually increase self-esteem and feelings of power and control.

Yet swallowing your pride and apologizing—even if you don’t feel responsible—still makes sense. Here’s why:

Apologizing does not always mean that you’re wrong and the other person is right. It just means that you value your relationship more than your ego.

In business, preserving your ego will cost you thousands, if not millions. Take the Volkswagen emissions scandal. When regulators discovered VW cars used illegal machinery to meet emission regulations, the then-CEO of the U.S. VW branch didn’t apologize. Instead, he placed the blame elsewhere:

These events are deeply troubling. I did not think that something like this was possible at Volkswagen Group [. . .] This was a couple of software engineers who put this in for whatever reason [. . .] This was not a corporate decision. There was no board meeting that approved this.

What impression does that give to you? Either the CEO doesn’t have a clue about the team or company he’s managing—or he simply prefers blame someone else. Both are toxic for a brand.

A more likely scenario for business owners is having to apologize for another employee’s mistake. Here’s how one company did it right:

Tylenol is no stranger to this. A batch of dodgy Tylenol pills, suspected of being laced with cyanide, killed seven people in Chicago in 1982. But neither Tylenol nor the manufacturer, Johnson and Johnson, was believed to have made the mistake.

Advertising experts predicted the end of the brand, with one even saying:

There may be an advertising person who thinks he can solve this and if they find him, I want to hire him, because then I want him to turn our water cooler into a wine cooler.

But Johnson and Johnson sent a global, heartfelt apology, and recalled 31 million bottles, offering free replacements (to the value of $100 million) in return.

The result wasn’t as damaging for the brand as advertising experts predicted. The company recovered 70% of its market share within five months and was back up to 90% a year after the incident.

2. Apologize publicly.

Don’t cover mistakes and hope nobody notices.

It’s a misguided strategy many brands have followed—including Samsung, which demanded a YouTube user delete a video he uploaded to prove his Samsung battery had caught fire.

They prevented him from uploading similar material in the future with legal action and never made the settlement public. (Only he did—in a video that generated over a million views in a single week. Classic Streisand Effect.)

Label Insight found that 73% of consumers are willing to pay more to support honest and trustworthy brands, and transparency is a key component. If you’re going through the torment of making an apology, you may get more value out of doing it publicly.

Take KFC, for example. Customers were outraged when their UK restaurants “ran out” of chicken. But instead of covering up the problem, they paid for advertising space on billboards across the country to apologize publicly:

kfc no chicken apology

As James Altucher argued, “Honesty is the fastest way to prevent a mistake from turning into a failure.”

How can you determine when a corporate apology should be made public? Ask yourself whether the issue impacted a large volume of people.

An apology for shipping incorrect products to a single customer, for example, doesn’t warrant a public apology. But a product failure that affects a significant percentage of your customers very well may.

3. Respond in a timely fashion.

Research collected by Altitude Software found that over 80% of customers expect a response to emails and social media posts within 24 hours. Judging by average hold times, those expectations may be even greater for telephone interactions:

  • Disney Store (12 seconds)
  • Urban Outfitters (17 seconds)
  • Nordstrom (21 seconds)

Patience declines further if your customers need a response from you. Just take this complaint sent to Stripe, for example:

Customer service budgets can’t always accommodate consumer demands. A tool like Mention can help identify when (and where) people are talking about you online, increasing your ability to respond rapidly.

4. Explain what went wrong.

According to psychologist Robert M. Gordon, there are three components of an apology:

  1. Acknowledgement
  2. Remorse
  3. Resolution

The simplest way to get those components into your business apology is to explain what went wrong and what you’ve done (or will do) to prevent it from happening again.

Here’s how Airbnb put this into practice when they came under fire for reports of racial profiling and discrimination on their site:

airbnb apology letter

They enlisted the help of a legal professional to review the entire website, highlight issues, and prevent any further discrimination.

5. Offer an incentive.

Repeat customers generate up to 40% of a store’s overall revenue, and retaining them can be up to 20 times cheaper than acquiring new customers. An apology can turn an unhappy customer into a repeat one, or keep a current subscriber from becoming a past one.

At times, it may require an incentive—a reason to give you a second chance. Incentives include:

  • Coupons
  • Discount codes
  • Free products

Ellie Shedden, founder of marketing agency The-Oop, experienced this first-hand. She vacationed to a remote location with no internet, only for her social media scheduling tools to stop working the day she left. Her clients had no content for several days, and understandably, she came back to angry emails.

Her response? This email:

Dear Client,

I have just come across a problem with the scheduling app I use for social media, which means that only one post was shared on your account last week. Sorry for the error – I was on holiday from Wednesday until today to celebrate my birthday so didn’t pick up on it.

To make up for the missed posts I will schedule an extra 4 posts over the next 2 weeks and launch a one day growth campaign across your accounts.

Once again, please accept my apologies for this error.

Shedden says being honest and succinct, while offering an extra service, helped rebuild client trust: “I had a great response, with clients even contacting me to thank me for the proactiveness and wish me a happy birthday!”

Brendan Hufford seconds this strategy. When he pre-sold an entire line of jiu jitsu uniforms at $150 a pop, his customers expected a three-month wait for their order.

But during production, Brendan’s designs weren’t coming through clearly, samples were poorly made, and worst of all—his manufacturer went radio silent for two weeks.

In the end, customers waited six months for their order. To apologize for the delay, Brendan sent every person who ordered (whether they asked for a refund or not) a box containing:

  • A personal letter
  • T-shirts
  • Instructional DVDs
  • The current issue of the most popular jiu-jitsu magazine
  • Memberships to the world’s most popular jiu jitsu online training website

He says:

All in, delivering the apology box and the uniform would mean I’d lose money on each order. The best way to say sorry, in my case, was to use all of my revenue and invest it back into the customer.

The easiest way to turn a casual customer into a brand advocate is to over-deliver and some of my greatest evangelists came from that botched order and series of unfortunate events.

6. Remember: It’s not just what you say; it’s how you say it.

How you deliver your apology is just as (if not, more) important than the apology itself. Research published by the Journal of Management concluded:

The slope of the relationship between apology condition and willingness to reconcile increased as sincerity increased, meaning that apologies carry even more weight relative to no apologies when they are perceived to be sincere.

In simple terms: The more sincere your apology seems, the more likely it is to be accepted.

But sincerity isn’t a checkbox; it forms the foundation of a corporate apology. An academic study on the human response to messaging found that the tone of voice accounts for 38% of how much we “like” a message, and facial expressions account for 55%.

Small shifts with body language—eye contact, hand gestures, facial expressions, and other body movements—play a huge role in the acceptance of your apology.

Consider this apology from Whole Foods’ CEOs. They look sincere with their eye contact and body language, making the apology more convincing:

Apply the same concept when delivering offline apologies. Whether you’re sending an email or writing a script for an upcoming call with a disgruntled customer, remove instances of “if” or “but,” which can ruin an entire apology.

Which of these apologies seems more sincere?

  • I’m sincerely sorry for this error, which was due to one of our administrative team entering the wrong code into our CMS.
  • I’m sincerely sorry for this error, but it happened because our administrative team entered the wrong code into our CMS.

I’ll bet it was the first option. It sounds more sincere because it explains why the problem happened. The second almost sounds like an excuse.

Conclusion

Piecing together a convincing business apology is tough. But to turn unhappy customers into repeat, long-term fans, you’ll need to own-up to your mistakes and pen a sincere apology.

The exact script you should create depends on the situation you’re apologizing for: An apology for delivering incorrect products will be totally different to an apology for a morally questionable advertisement.

But the six steps outlined in this post will help you create one that keeps your growth goals on track:

  1. Apologize even if it’s not your fault.
  2. Apologize publicly.
  3. Respond in a timely fashion.
  4. Explain what went wrong.
  5. Offer an incentive.
  6. Remember: It’s not just what you say; it’s how you say it.

The post Business Apologies: What You Should (and Shouldn’t) Do appeared first on CXL.