How to Evaluate Customer Pain Points

High-profile entrepreneur and outspoken business coach Dan Peña once said the formula to becoming a billionaire is to “change a billion lives.” So how do you make an impact on a billion people? By developing a product that solves a common problem.

Having launched products across industries, including financial services, software, and consumer packaged goods, I know that the first, most important step in the development of any product is to identify a real customer pain point and determine how many other people have that problem. Without this research, you are basing your product on a gut feeling—and hunches are not a good strategy for success.

A central challenge in many digital product launches is the misalignment between what customers need and what the product team is developing. Too many products fail because the idea is based on a trend or “cool” technology, then retroactively force-fit to serve a need. Robust research is the key to ensuring your product provides real value to real people. When evaluating potential customer pain points, there are two types of analysis you should perform: a literature review and primary research.

Literature Review

On a winter night in Paris in 2008, Travis Kalanick had trouble finding a cab. The following year, he co-founded Uber. Phil Knight developed the idea for Nike because of his coach Bill Bowerman’s dissatisfaction with the quality of American running shoes.

Many innovative companies have been founded by considering pain points that customers have encountered. A pain point with extensive reach is likely being experienced by you or someone you know right now, and is a great starting point for a new product idea.

Once you have a problem in mind, you need to determine how many people are encountering it.

Segmentation

Segmentation is the process of dividing the market into smaller groups in which subjects share the same characteristics, enabling companies to better target consumers. There are four types of segmentation: geographic (location); demographic or firmographic (age, family size, company size); psychographic (personality, lifestyle, attitudes); and behavioral (rates of usage, benefits sought, product loyalty). Select the right segmentation strategy for your business or product.

Next, you need to evaluate whether you have the resources and competencies to take on a segment and compete for it. This is where your literature review comes in. Using relevant research and statistical evidence from academic journals, think tank reports, government surveys, and third-party market research, conduct an analysis of your chosen segment’s value.

There are three ways to estimate how valuable a segment is. First is the TAM-SAM-SOM approach:

• TAM (total addressable market): How many people share the same problems?
• SAM (share of the addressable market): How many people are within your capability to serve?
• SOM (share of the obtainable market): How many people can you realistically gain when challenging competitors?

You should also look at growth potential. Is the market going to shrink or expand in the next five to 10 years? A good way of measuring this is to determine the compound annual growth rate (CAGR), which calculates returns over time.

Lastly and most importantly, examine willingness to pay. How much would customers value your product economically and experientially? In addition to a literature review, you can conduct A/B tests around cost, competition, and/or value. Calculating these numbers is not an exact science, but you can still get a strong indication of whether the problem is worth solving.

Product Positioning

Once you have determined that a segment is worth targeting, think about how you might position the product relative to the competition. Use the four P’s of marketing:

Defining the four P’s allows you to consider how you can differentiate your product in the customer’s mind and create a targeting strategy.

Create a target consumer profile (TCP) to help you understand exactly who the product is for; this can then be used to guide all product communications. When working on a particular category for Nescafé, for example, I defined our TCP like this: “Joe, between 20 and 45 years old, is a professional in a fast-paced job who enjoys good-tasting coffee on the go.”

Primary Research

In order to verify the conclusions drawn from your literature review, you must engage and speak with prospective customers. There are generally two ways to find them: warm leads and cold leads. Warm leads are referrals from family, friends, or co-workers. Cold leads are generated through digital marketing via channels such as social media.

Wherever your budget permits, use ethnographic research methods too. This means collecting data through real-life observations and interactions, and using it to understand how individuals function. This will give you in-depth insight into how and when customer pain points are encountered. Surveys are often biased, with participants potentially giving more favorable answers that could skew the desire for your product. Ethnographic research methods offer a more accurate view and will therefore give you greater confidence that your product will sell.

When launching the repackaging of Nestlé Temptations ice creams, for example, our team commissioned an agency to handpick households that closely represented our target demographic. We received consent to observe them in their day-to-day life for a specific period of time in order to gather insights. From this research, we were able to conclude that our target segment was aspirational: People wanted a high-end consumer experience that made them feel affluent. We rebranded the product as Nestlé Flavors of the World, positioning it as an elegant journey in which consumers can have a different cultural experience with each selection.

Communicating the Solution

Once your primary research has concluded, craft a positioning statement to ensure that you are effectively communicating the solution to your chosen segment. This is an internal document that conveys your product’s unique and relevant space in the customer’s mind and serves as the foundation for a strong marketing strategy. It should include the following categories:

• Target market: Who are you looking to target?
• Core benefit: What is the pain point you want your customers to understand your product solves?
• Other benefits: What other attributes do you want associated with your product?
• Support points: Why should your target market believe that your product can deliver the core benefit?
• Competitive advantage: What are the conditions that help you deliver the core benefit?

Here’s an example using the Starbucks brand:

Use this information to craft your positioning statement. For Starbucks, it could read: “For millennials who view coffee as a lifestyle, Starbucks delivers quality service and beans so that customers can enjoy a premium, ethically sourced coffee experience. Our global presence and robust barista training enables us to offer consistent quality, customizable offerings, and a comfortable atmosphere.” Constructing this statement helps you get clear on your value proposition, framed in the context of your target customer.

Remove Bias and Verify Value

Who is your customer? What problem are you solving for them? How much is that problem worth? Who are your competitors, and why should the customer choose your product over theirs? You should now be able to answer all these questions confidently.

It’s easy to assume that a product will sell, so take care to remove any bias with a thorough, objective evaluation. By reviewing relevant literature, conducting segmentation, defining positioning, and talking to real customers, you can ensure that the problem you’re solving is a real and common one. Verify that customers will buy your product at your preferred price, via your preferred channel, and as a result of the campaign you have planned.

Identifying pain points is not the hardest step: There are many great product ideas out there, but undertaking these research steps is crucial in order to truly determine their value. Do this, and you might just serve a billion people.