Understanding customer preferences is a make-or-break for your business. Guesses or hunches won’t get you far. Accurate, in-depth data on their preferences and priorities is needed.
Unfortunately, the methods many companies use to gauge customer wants and needs often fall flat. Asking customers to simply rate products or features on a scale frequently gives vague, misleading, or superficial results. People tend to say everything is "very important" if they don't have to make tough trade-off choices that force them to prioritize. And when “everything” is important, nothing is important.
The solution is to uncover customers' true priorities using advanced research techniques that force them to make difficult trade-offs between different options. This reveals what they value most when facing real-world constraints and limitations, just like in an actual buying situation.
But before we look at specific customer preference research techniques, I want to cover some fundamental underlying concepts around how consumer preferences actually work.
The idea of utility
In economics, utility refers to the satisfaction, benefit, or usefulness a customer gets from a product or service. It’s a measure of the value a specific offering delivers. If economic theory holds, a customer will always choose the product in which they receive the highest utility.
But utility can vary a lot from customer to customer. It depends on their needs, wants, personal situation, lifestyle, responsibilities, ingrained tastes, preferences, and psychological factors - to name a few.
For example, a parent with multiple young children may get higher utility from a large vehicle with plenty of storage space than a single adult living in a city with no kids. The exact same vehicle offers wildly different levels of utility to each potential customer.
Understanding and measuring the utility of your products and services among different customer segments should be a necessity for any business. It allows you to design and optimize offerings that deliver maximum benefit and satisfaction.
Measuring utility in the real world
The idea of utility helps us understand customer preferences, but measuring it requires smart research methods. Researchers use techniques like choice modeling to figure out how much utility a consumer has for different product features.
Choice modeling works by showing customers different product options and asking them to pick the one they are most likely to buy. These choices reveal which features matter most to customers. Researchers then calculate a "utility score" for each feature. We can “simply” sum up the individual utility for each feature to obtain the total of a product. Then, based on economic theory, the consumer would choose the product that has the highest total utility.
This approach gives businesses valuable insights. It helps them understand which features customers care about most and predict which products will be popular. Measuring utility can turn customer preferences into successful products that people love.
Complex factors shape real-world consumer preferences
In addition to the uniqueness of the individual, the industry you compete in will also influence customer preferences.
For many industries, brand and price are typically the top two considerations for consumers. However, other factors also play a big role.
Some of these factors include:
Personal characteristics and situations
Basic personal traits like age, personality types, personal values, and other individual differences guide what customers tend to prefer and prioritize.
Marital or family status, living situations, career, income levels, and other circumstances profoundly shape needs and wants.
Personal benefits and sacrifices
Customers are most focused on the personal benefits they'll get from a product versus any sacrifices required. This perceived benefit-to-sacrifice ratio is a crucial driver.
Depending on the circumstances, a customer may be willing to sacrifice more money or hassle for a greater perceived personal benefit. Or, they may prioritize minimizing sacrifices if the benefits aren't valued as highly.
Companies have to think about this intricate web of factors shaping and limiting the preferences customers actually express in the real world.
Cultural and social influences
The cultural backgrounds, values, and social norms customers grew up with have a profound influence on their preferences and choices as consumers. What's considered acceptable, desirable, or even possible can be largely shaped by culture.
Social circles also affect the preferences people express. Humans have a strong desire to emulate valued groups, and social proof heavily impacts choices.
Psychological factors
A whole host of subconscious psychological drivers like motivation levels, value systems, cognitive biases, and emotional factors influence what customers are drawn to and persuaded by.
Macroeconomic factors
Factors outside the individual also affect preferences, like:
The overall economic conditions, inflation levels, and personal financial constraints
Societal trends, political forces, and current events
Pro Tip: When designing a research study, be sure to consider all the potential factors that could shape a customer’s decision to purchase and try to test those hypotheses within your survey framework. The composition and diversity of your survey sample is also equally important to consider and set strategies around. For example, testing a new AI feature for your product or service? Make sure your sample consists of consumers all along the tech adoption curve. Understand if they’re using AI today and their openness to using it in the future. This way, if the feature flops, you’ll have multiple data points to triangulate why. |
Why focusing on preferences is critical
It is crucial for business to understand customer preferences because of the immense power it provides:
Giving customers exactly what they want
Rather than guessing based on hunches or internal assumptions, detailed preference insights allow you to deliver the products, services, and experiences your customers most want.
Identifying unmet needs
Beyond meeting existing wants, new innovations often emerge from uncovering unmet needs that customers may not even be consciously aware of.
De-risking product and service development
New offerings built around scientifically validated customer preferences have a lower risk of failing or missing the mark with the target market. The upfront insights "bake in" what customers want.
Optimizing your current portfolio
Even for existing products and services, continually capturing updated preference data allows you to optimize features, pricing, and other elements over time for maximum performance.
Properly prioritizing resources and investments
With clear preference data, companies can invest wisely in product development advertising channels, increasing their ROI.
How will my company benefit from understanding customer preferences?
Companies can gain significant strategic benefits from understanding customer preferences.
It is not uncommon to have heated internal debates about which features to prioritize on the product roadmap. But imagine being able to resolve those debates by leveraging impartial, third-party research data that directly captures the voice of the customer.
If you’re an early-stage startups, this understanding is pivotal to ensure there is a market for your offering.
Even for established companies, understanding customer preferences can inform strategic decisions, such as which features to include in a new version or how to cut costs while preserving the most valued aspects of the product.
Contact us to learn how advanced analytics can boost your business.