Are you the bun or the pickle in your customer’s life? Analysing their spending is the best way to know for sure.
If you’re trying to work out how to price your product or service, it’s very hard to go for the jugular and ask customers “how much should this cost?”. Don’t worry, us sneaky researchers are good at finding indirect ways to answer questions, so we’ve got your back.
Our last post was the pricing piano 🎹 which is all about positioning relative to competitors, this week it’s the relative spend burger 🍔 – another way to get under the skin of how people think about price.
When people pay for a product, app or service, it’s not the only thing that’s going on in their lives. Seeing what else they are spending money on can help us position where our solution fits into people’s overall context.
Comparing the budget allocated to different, but adjacent purchases is what the price consultants call ‘relative framing’ (you can use this term if ‘spend burger’ doesn’t meet your standards). It’s not the same as comparing the price of competitor solutions, which is what we were doing on the pricing piano.
This allows us to:
If you know me (Andrew), you’ll know my two favourite things in life are burgers and analogies. A burger is a stack of essential and less-essential ingredients. Let’s not get into a flame war about whether cheese is essential, but I think we can all agree that a burger (meat or equivalent) is mandatory and a bun is highly typical. Condiments, salad, bacon, pickles etc are where things become more of a personal value preference.
If we think about what people spend on each of these ingredients, we can start to see not just what’s essential, important (cheese, bacon) and nice to have (lettuce, tomato, mustard), but what this means in terms of the budget they’ll allocate to each ingredient.
So we end up with a total budget allocated to the outcome (a tasty burger) and the relative spend on each of the adjacent ingredients.
If we think about the burger itself as the focus of our simplistic analogy:
Competitors: supermarket frozen | supermarket high-end | homemade | lamb burger | premium wagyu | veggie | from the butcher | a big ol’ mushroom
Adjacent items (tasty overall burger): bun | cheese | salad | condiments | pickles | onions
Here are some examples of products and adjacent purchases we’ve encountered in recent projects:
Competitors: hamper | branded swag | voucher | food or drink item
Adjacent items (employee benefits): salary | bonus | healthcare | training | events | wellbeing
Competitors: different kinds of pannier | backpacks | trailers
Adjacent items (bike adventure gear): car racks | the bike itself | bike clothing | tools | pump | tuning services
Competitors: sleep consultants | digital sleep courses | sleep books | night nurses | sleep devices
Adjacent items (baby wellbeing): dietician | swim coach | baby furniture | personal wellbeing solutions for parents
In research, we love to do a ‘card sort’ where we get people to prioritise or categorise items written on cards. It helps us to understand what’s going on in their brains and, in this case, their wallets.
Example, our product is a corporate breakfast service that provides offices with daily fruit, pastry and cereals which they can order through an app. In this case, the zoomed out category might be employee benefits.
Here’s how I’d run a relative spend analysis with the target customer (in this case probably an HR manager):
Ask questions that establish the category(s) that your solution might fit into:
Zooming out is a bit abstract, often purchases sit in multiple categories and it’s hard to find the right level of abstraction. Food and drink perks may be too narrow, with only a few comparators, so we ask about employee benefits in general.
Write down all of these answers on cards:
The customer then puts the cards in descending order of spend.
If they aren’t already buying a direct competitor, now’s the time to see where your product fits in.
Certain items are likely to command way more budget, which won’t be reflected in a simple ranked list. For example the spend per head on an annual Christmas party probably exceeds office snacking by an order of magnitude. Here are some ways to find this out.
Depending on the topic, a customer may or may not give exact spend numbers for these items.
You know the drill. Speaking to a mix of customers will help you to look for patterns (and ignore outliers).
Firstly, we’ll find out if we’re the cheese or the bread in people’s lives! Spending is a pretty good indicator of what is most valuable or essential (and what they’d cut first if they had to).
We’ll find items that people categorise as similar to our product and get upper and lower limits from the items above and below it.
And finally, if we found out that lettuce = 1/20th of the value of a burger, we’d have a relative price that makes intuitive sense to people.
The result: a rich picture of spending in our customer’s business which can inform your pricing strategy, along with other insights that can inform product strategy and marketing.
Are you thinking about doing some pricing research and want some help planning or running it? Get in touch.