The Titanic Effect with Kim Saxton (Series Part 2 of 3)

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Today we are doing part 2 of our 3 part series on the Titanic Effect (link: https://www.titaniceffect.com/competitors), a book by Todd Saxton, Kim Saxton, Michael Cloran. In today’s episode, we talk with Kim Saxton, who spearheaded the marketing ocean. With her 20 years of experience working with and investing in start ups, as well as her professional career, she has become specialized in marketing, and more specifically segmentation. She details the different seas within the marketing ocean, which are segmentation, positioning, and implementation.

Topics in the episode

Sometimes the problem in segmentation isn’t that you aren’t talking to the right people, it’s that you haven’t identified the thing that’s different and better that they would love.
— Kim Saxton
  • Importance of categorizing customers based on need, rather than demographics

  • Experimenting with Facebook ads

  • Pivot phenomenon

  • The 4 P’s of Marketing

  • Selling features vs benefits to your customers  

  • Importance of consistency in social media for branding

  • Value in use pricing

  • Biggest mistakes companies make that can lead to hidden debts

Contact Info

https://www.titaniceffect.com/competitors

Email: mksaxton@iu.edu

Twitter: https://twitter.com/TitanicEffect

Facebook: https://www.facebook.com/TitanicEffect/


Transcript

Mike Kelly:          Welcome to the Startup Competitors podcast. Today, we are doing part two of our three part series on The Titanic Effect, which is a book by Todd Saxton, Kim Saxton and Micheal Chloran. Today we have Kim Saxton. Kim, welcome to the show.

Kim Saxton:        Thanks, Mike. I'm super excited to be here.

Mike Kelly:          All right. You spearheaded the marketing ocean. Is that correct?

Kim Saxton:        That's correct.

Mike Kelly:          Why don't we start with a quick overview of the marketing ocean and what all is entailed?

Kim Saxton:        Yeah. I come at this issue of hidden debts, which is a term I loved the first time I heard technical debt. I was like, "Oh, I didn't even know that was a thing." After 20 years working with startups, both on the ground trying to help them as well as advise them and even investing in them, I had seen some things that people do when they're thinking about marketing, and I was like, "They don't realize that that choice is going to cause them challenges later on, that there are consequences of that choice by not making other choices."

Kim Saxton:        It was just so parallel to technical debt that I really got excited at thinking about, "Okay, what are these decision points that once you've made it, constrain you in the future, and how can we help people be more thoughtful about marketing?" I think in some ways for startups, marketing is a challenge because everybody can do marketing. We can do a lot of experimenting, and we learn as we go, but every time we experiment and choose a path, that means that we didn't choose another path. So, I started looking at where are the biggest problems that I see in marketing. The first one comes in what customers do you choose to go after. Technically, we in academics, I teach these concepts in major business schools, so I know what we're supposed to teach, and then I get to see how it plays out for real with startups.

Mike Kelly:          Yeah. What idiots like me actually do. Right.

Kim Saxton:        We call that market segmentation. When we say market segmentation, what we mean is think about an endless stream of customers, whether they're people or companies. There are buckets of them, buckets where everybody inside the bucket is similar, and that bucket is different from another bucket. Right? So, who do you choose to go after? Well, the challenge for startups in the segmentation sea is that they want the product to be for everybody, but they don't have the resources to go after everybody.

Kim Saxton:        The first thing you have to do is figure out for whom is this product perfect, and that's segmentation. Once you know for whom this product is perfect, the second sea is what I call the positioning sea, which is how do you talk to them about this. So, there are two big things that happening in the positioning sea that cause challenges. First of all, everybody interprets any new information they get from what we call a frame of reference. The mind is a beautiful computer like instrument, and all new information that comes in, the mind tries to categorize it.

Kim Saxton:        So, that's your frame of reference. What's the category I'm supposed to think of this as? The classic example I give is fast food. Right? If I tell you something is fast food, you immediately have attributes that come to mind. Right?

Mike Kelly:          Yes.

Kim Saxton:        Like?

Mike Kelly:          Like it's probably not going to be that tasty, it's probably not going to be nutritious, it's probably going to be cheap, it's probably going to be lower quality, all of that.

Kim Saxton:        But it's going to be very convenient.

Mike Kelly:          Yes.

Kim Saxton:        Some people would argue that it's probably going to be tasty but not healthy.

Mike Kelly:          Yeah.

Kim Saxton:        But maybe not as tasty and flavorful when you think of flavors. It's not going to have a lot of flavors, but let's all admit that a McDonald's fry is pretty yummy. Right?

Mike Kelly:          Can be, yes.

Kim Saxton:        So, if I tell you something is fast food, immediately all those attributes come to mind and you know what I'm talking about. Right?

Mike Kelly:          Yes.

Kim Saxton:        Then you can say, "But I'm not like those. Here's how I'm different." You have to be in a market category, a frame of reference that people know. You also have to be able to say how you're different. Then the other thing that happens here is that how you're different changes over time. This is the whole pivot phenomenon that because you're trying to find product market fit, sometimes you don't know exactly what the right way to be different is from the outset, so you tell people you're different for one reason, and three months later or six months later or a year later you change it and now you're different for something else. Now you have a customer database of people who raise their hands for two different offerings, and they don't know which you are. That's the positioning sea.

Kim Saxton:        Then the third sea in the marketing realm is really about implementation. It's tactical kinds of things. We talk about pricing and value and the sales process, and then even advertising. Advertising is a huge problem for startups because it's very expensive. So, anything that you try to do to minimize your costs is also going to have not very much reach. So, positioning yourself or making choices that make it easier to scale your sales and marketing later are what we try to talk about in that sea, is how do we take some of what we call marketing the four Ps and set up a startup so that it has an opportunity to be successful.

Mike Kelly:          Four Ps.

Kim Saxton:        The four Ps of marketing are product, price, we use the term place to mean distribution or thinking about how to access customers, and then the last one is promotion, so advertising fits in there.

Mike Kelly:          Got it.

Kim Saxton:        So, Facebook, for example, is a really cheap tool, and every business can put up a Facebook and run Facebook ads, but you can't just be Facebook. You have to also invest in a website and email marketing and all those other things.

Mike Kelly:          Right. Let's start with the segmentation sea, which I think is the first one. Give maybe anywhere from one to three of your favorite hidden debts within that sea and maybe some real life examples of where you've seen that play out.

Kim Saxton:        Yeah. The first one is just what's the quality of the segmentation that you do. In the ideal world, and I'm kind of lucky, I'm a bit of an expert in segmentation. If you were to look at marketing professionals or academics and say what are you know for, I'm known for segmentation. I gained that first when I was at Lilley prior to when I joined Lilley. Lilley had never segmented their customers except in broad strokes of either primary care physicians or specialists, and over a two year period I got to develop and roll out eight different segmentation schemes across the company and we got to see them be very, very successful. Some places are not so successful than other places, so I was able to look at best practices from even just how do you segment a market, to best practices in how do you implement against the segmentation.

Kim Saxton:        Then I found some other academic researchers that I helped develop new segmentation techniques, so I've published on those in academic journals. Then lastly I've looked at how do you actually promote to different segments, and I have two papers that I've published on promotional techniques to different segments. That's sort of my bailiwick.

Mike Kelly:          Okay.

Kim Saxton:        The easiest way to segment is the way that mostly Facebook and other social media let you do, which is based on demographics. That's your traditional way that the industry segmented was on demographics, because we have all this demographic data. We can look at men, women, higher income, lower income, geographic location, things like that. But that's not really what determines how people are different. There might be some things that vary that way, but if you take, for example, chocolate. Right? Say you had a new kind of chocolate. It's likely that women would eat more chocolate than men, likely. However, there are some men that will eat more chocolate than women. Right?

Mike Kelly:          Okay, yep.

Kim Saxton:        So, we can't really segment on gender. Right?

Mike Kelly:          Right.

Kim Saxton:        Instead, what you need to segment on are what we call needs. This is the hardest thing because they're not visible, they're why is somebody hiring a product. I might be hiring chocolate because I'm on a keto diet and I want something that tastes good and I need 70% cacao, or I might be hiring chocolate because I've had a really hard day and I just want a sweet treat and I might want something that's milk chocolate with peanut butter. Right?

Mike Kelly:          Right.

Kim Saxton:        Or it might be that I'm going to use this to replace a meal, or it might be that I'm going to use chocolate to keep awake. Right? There's different reasons that people are hiring chocolate. If we can segment based on those, that would be amazing. But we have to do market research and then we have to tie it back to demographics because we're going to buy our media on demographics, so that's what the challenge becomes, is that it seems too difficult or too expensive. That's the first hurdle is that we just don't segment. We just throw our hands up and say this product is good for everybody.

Mike Kelly:          When am I starting to think about segmenting? Because one of the things I can imagine is a challenge, even in what you just laid out there, right? Is if I'm trying to find product market fit still, and let's say I haven't found that, again, my instinct might be, "Well, I want to try all of those to see where I stick." Right? I'm going to take a shotgun approach. I'm going to go after all of the potential segments and see which ones respond to us the quickest, and then we'll very quickly shift focus and double down on that one, or I could easily see it as no, the counter argument would be that's the worst way to do it. You should identify a specific segment, build a ton of value for them, and get success in that segment and then slowly start to bleed into the other segments. Right?

Kim Saxton:        Right.

Mike Kelly:          Any tips? Or how do you recommend a startup approach that discussion or thought process?

Kim Saxton:        Yeah. It's an iterative process, is the answer. I always encourage people to start first with thinking about who is the ideal target. Either that's because you have a product idea that you think is really strong, and so there is a group of people for whom this would be perfect and you make it perfect for them, or if you aren't really sure yet, then maybe you have to try multiple segments. I'll give you an example from your own podcasts. So, Latoya Johnson with Away Zone, she has a broad list of minorities that she could approach. She's creating essentially a tool where people who have cultural specificity can identify businesses than can meet their needs.

Kim Saxton:        Examples that she gives are if you have natural hair as a black woman, when you go into a town you need someone who has special skills in how you manage the hair, then you need to find out where are those people. She could do by religious affiliation, she could look at by minority status, Asian, African American, Indian, she could look at sexual orientation. What she said is there's two areas where she's really going to focus, which is black women and LGBTQ women, because it's a place she comes from, so she understands it very well, and it's a group that generally has a healthy spend and very specific needs. That's a great place to start.

Kim Saxton:        Her hypothesis would be that those two are her best segments, and now design the perfect product for them. Then if you aren't getting traction, and by that I mean they are not raising their hands. The reason you segment, two reasons. One would be to be more efficient in your spend. Right? So, I can spend less. The second part is to be more effective. I get a higher conversion rate. So, if your early experiments you're not getting people to raise their hands faster and you're still having to spend a lot of money to find them, then you're not going to meet those criteria. That means you need to switch. So, start with a hypothesis of your first best segment, and then have metrics to valuate your progress. If you're not making progress, then realize it's time for a different experiment.

Mike Kelly:          Is there a way to distinguish between a problem with segmentation versus a channel problem?

Kim Saxton:        Yeah. That's a tough one. We haven't even talked about channel. Right?

Mike Kelly:          Oh, sorry. Yeah, I'm getting ahead of myself.

Kim Saxton:        Which is place, in my lingo. I always like to say that what you ought to do is first find the right bucket of customers, and then think about how do I access those customers.

Mike Kelly:          Yeah, where are they?

Kim Saxton:        Where are they? Who has a relationship with them? I usually tackle that and the implementation sea around sales. It's too expensive to sell to every customer. You have to find people who have relationships and leverage those relationships that your channel partners. It is probably both of those, but early on you should be able to efficiently find people. Now, I gave you an example earlier that I'll use, which is for the book. Right? We are doing some experiments on Facebook with advertising. Right?

Mike Kelly:          Yeah.

Kim Saxton:        So, I think, "Well, who's going to be interested in this book?" It's going to be people who live in cities that are known for entrepreneurship, who engage in entrepreneurship oriented content on Facebook. Facebook lets you go in and pick cities, so I pick Austin and Nashville and Denver, where we know there's a lot of startups occurring, and then you can pick the content, different pieces of Mashable or Tech Crunch or Startup Weekend or The Lean Startup. All of these I can say. They see this content and I can pick them.

Kim Saxton:        So, in a short test we did, spending $50 just to see what kind of traction we get, we got 300 and something, 74 people click through to Amazon from those ads at 12 cents a click. That's pretty efficient.

Mike Kelly:          Yeah. That's awesome.

Kim Saxton:        I'm going to say that was an experiment that sort of said, "This is our right target segment."

Mike Kelly:          I want 12 cents a click.

Kim Saxton:        12 cents a click is all right. So, again, a hypothesis, test it, have some metrics back, and then if that's not working, ask yourself, "Do we have the right customer? Do we have the right product?" Or is it really a positioning problem? Is it in the positioning sea? Do we actually understand what they need to see to be different and better? Now, and I'm skipping seas, so tell me if you want me to go back and do some more examples in the-

Mike Kelly:          No, you're good. I was going to say we should move onto the positioning sea, so let's dive in there. Give us a couple of those hidden debts and maybe some real examples.

Kim Saxton:        Yeah. You have to be different and better. This is the saddest news for startups and for any marketer, and I hate this and I see this all the time. When you're marketing to somebody, you're trying to change their behavior. How easy is it to change behavior?

Mike Kelly:          It's very hard.

Kim Saxton:        How easy is it for you to change your own behavior when you know what you're supposed to do?

Mike Kelly:          It is very hard.

Kim Saxton:        Now, how much harder is it to change the behavior of someone that you know like your family or a friend?

Mike Kelly:          It's even harder.

Kim Saxton:        It's even harder. Now we're trying to change the behavior of strangers. Right? The thing that most people will do when someone's trying to change their behavior is nothing, continue the behavior that they already have. We know from study after study after study that the best indicator of future behavior is current behavior. We also know from study after study that if we ask people what do you intent to do in the future, they will claim that they're going to change their behavior, and in fact they don't. Okay?

Kim Saxton:        So, what causes someone to change their behavior is the question you have to ask yourself. What causes them to change their behavior is when there is something that would be different and better for them. That's the crux of positioning, is that first of all you need to know what category you play in, and then secondly you need to know what does this target customer think is different and better, and therefore worth paying for, and therefore worth changing my behavior for, and that's what you have to position on.

Kim Saxton:        So, sometimes the problem in segmentation isn't that you aren't targeting the right people, it's that you haven't identified the thing that's different and better that they would love. I'll give you an example. I was just talking to a startup this week. This startup has a capability for doing seamless data communicate, are the terms that they used.

Mike Kelly:          Okay.

Kim Saxton:        Seamless data communication. That sounds pretty cool. Right? I've got two different databases, and they don't talk to each other, and somebody has to help them talk to each other, and so they have this software that goes between, these are two things that can't API to each other. They have to be connected to convert, and that's what they do. They have software in the space between two disparate databases.

Mike Kelly:          Okay.

Kim Saxton:        Okay. Who's buying seamless data communication?

Mike Kelly:          My initial instinct are big enterprise companies that have a bunch of data in different systems and they need to move it all into one place so they can make it more actionable.

Kim Saxton:        That would be a great explanation of the target customer, but you know what? Nobody is buying seamless data communication.

Mike Kelly:          I fell into the trap.

Kim Saxton:        You fell into the trap.

Mike Kelly:          Dang it.

Kim Saxton:        What people are buying is what does the seamless data communication do for me?

Mike Kelly:          Right.

Kim Saxton:        Right? In this particular case, this software is between advertisers and media, and what they were buying was ads to be shown at certain times, and there are rules set up about how those ads are supposed to be shown, but the advertising media don't always obey those rules, which means that then you either get a refund or you get a redo or you get some kind of bonus. So, every month at the end of the month, these two databases have to talk to each other, so everybody knows what was done, what wasn't done, and how do we fix that. That's called a discrepancy report. That's what people are buying is discrepancy analysis. Right?

Mike Kelly:          That sounds way less exciting.

Kim Saxton:        It does sound way less exciting to a tech guy.

Mike Kelly:          Yeah, sorry.

Kim Saxton:        But to a market who's looking at optimizing spend, discrepancy sounds pretty cool.

Mike Kelly:          Good point.

Kim Saxton:        So, if you have the perfect large enterprises with large amounts of money where these small changes do add up, great. But if you're saying seamless data communication to them, that's like a solution looking for a problem.

Mike Kelly:          Right.

Kim Saxton:        You have to sell the problem. That's your positioning challenge. That little example is one we call features versus benefits. It's so easy for startups and everybody to think about the features that they're selling. But, in fact, customers are buying benefits, and you have to make the leap. But what is that benefit? Right? You can think of various groups that you're involved in. Right? The benefits change depending on the target customer, and then proving different and better is also critical and difficult. So, what ends up happening, so another kind of iceberg that pops up in the positioning sea is, as I said, you change over time. But it's even worse for startups. What I see is that, for example, once you know what you are, then you have to be consistent about how you express that.

Kim Saxton:        We have an example in the book, it will kind of make people laugh, if you look across all the databases that a startup is in, their website, Tech Crunch, Angel List, whatever, what you'll see is that they never use the same words twice, because each of those things were created at a different point in the journey of learning what do I talk about. It's just like your social media. Right? As a person on your social media profiles, you should be using the same language and the same pictures, unless you're strategically purposeful of showing a different side of yourself in different places.

Kim Saxton:        More and more often what happens is people do it based on when they got on, and so they all look like sometimes four or eight people, as opposed to one person. Same thing happens with startups. It's not that hard to go back and make sure that everything is uniform. That's the key to building a brand is that consistent look and feel. But no one remembers to do it, with exception. There's some really great examples of people who have done a great job of that, but the brand building needs to be thoughtful as opposed to accidental.

Mike Kelly:          How do you get somebody started in thinking about that transition from features to benefits, particularly as they start to move away from maybe the segment that they originally started the product for? I'll make that more tangible. So, let's say I start the product, I'm selling chocolate.

Kim Saxton:        Yeah.

Mike Kelly:          And I originally wanted to do something as a meal supplement. Right? So, there's chocolate in it, but maybe there's a bunch of other good stuff in there as well, right? You start to move into, as we then expand into maybe a different... maybe that was a meal supplement that was just fairly generic, meaning not for performance athletes.

Kim Saxton:        Right.

Mike Kelly:          So, then as we switch segments and are more successful with that and we get the segmentation right or we get the positioning right and we get the placement right and we get success. Then we say, "Okay, this performance athlete thing, we can sell the same product with some slight modification for a lot more money, because performance athletes are willing to spend more than your average every day person on nutrition, so we're going to go after that market. But I'm not a performance athlete. I don't know that segment as well, so then now when I start to think about positioning for that customer who I kind of know, but it's not me, I don't know them as well, how do you start to move away from... again, it's very easy to talk about features for that segment, we have X protein, we have these other things in there that you're going to like, how do you make that jump from talking about features to benefits when maybe you don't have firsthand knowledge of what those benefits are going to be?

Kim Saxton:        Yeah, it's the age old tough advice. Right? You've got to go talk to your customers. You can't sit inside the building and figure these things out. You actually have to go talk to people. They're going to have different language. So, the beauty is in performance athletes, there are websites, magazines, you can see what are the issues that they're talking about, so a performance athlete is probably more than the average person going to be thinking about, "Well, how does this energize me? How does this address electrolytes? How does this enhance my ability to perform? Because maybe I'm going to go for a run in the afternoon and I want to make sure I've got enough energy on board and other things I need in order to have a good run that feels great and not starve my muscles."

Kim Saxton:        So, you have to go and learn what the language that they use, what's important to them, and that's the challenge of when you go to expand from... you should start with your first segment, and then of course you have to expand. If you want funding, you're never going to get funding if you only master one segment.

Mike Kelly:          Right.

Kim Saxton:        So, then you have to understand how do those needs change and how are they unique and what is the language that they use as you're describing those benefits. That could mean having multiple products, ones for different segments, it could mean... I mean, the beauty of the web today is we can tree people through based on what segment they come from. I always like to make sure I remind people that when your targeting a segment, your goal is to be perfect for them so that maybe 80% of them will buy, which that's a pretty high hurdle. But that doesn't mean you can't sell to others. Other people will still be attracted to that message, and so it's really... and most of the time when we do segmentation and we're targeting, people have to self select. They hear our message and they say, "Oh my gosh, that's me. I need that," and they raise their hands."

Kim Saxton:        We don't know who belongs into which segment. So, when you're casting your messages out there, you might be aiming at one segment, but you're going to pick up other people for whom that message is attractive, despite the fact that they might not have been in your segment. That's good, that's okay. What you're setting yourself up for is that you don't want these two segments to have completely contradictory ideas, but there might be, I started here and here's meal replacement. I kind of pivot slightly and say, "That gives you the strength for your afternoon workout."

Mike Kelly:          Right.

Kim Saxton:        Etc, etc. Maybe then there's an older segment eventually that you'd want to go after, which is instead about avoiding frailty, maintaining muscle mass and strength, so eating for that purpose so that you don't fade away.

Mike Kelly:          Let's switch gears to the last sea, the tactical sea. What are maybe one or two of the hidden debts in that sea that you see most often in the wild?

Kim Saxton:        Yeah. The biggest one I think to focus on, and they're sort of related to each other, is finding something that customers value. You know what you want to be, how to be different and better, but will people pay for different and better or are they going to be happy with where they are? Is different and better something that is worth paying for is the biggest challenge. We'd call that the customer value void. There's lots of cool things that we could do. My fave example was off of quirky, which was a place where people could post product ideas and the community would vote, and if the community voted well, then that product would go into production. It failed because it turns out that there really aren't enough people to buy all the cool ideas that other people can come up with. One of those was a water fountain for dogs. Right?

Mike Kelly:          Okay.

Kim Saxton:        For parks.

Mike Kelly:          Sure.

Kim Saxton:        Yeah. It turns out a lot of people with dogs, they bring bowls with them, no one needs to pay the extra money for a water fountain. It's a cool idea, but it's not got enough value that I would pay for. That's the first one. The second one is related to that, is how do you think about pricing? You want to have some sort of premium pricing, ideally. Pricing makes every startup nervous, because if you price too high, people don't buy, if you price too low, you don't get any profits.

Mike Kelly:          Right.

Kim Saxton:        That range could be pretty high. I mean, I've seen in the various pricing analysis I've done from time to time that sometimes that's a tenfold range, from what is the lowest to what is the one that is most valued. Obviously the price ends up being somewhere in the middle, but picking that spot is pretty tough, and mostly you discover it by being overpriced, and people aren't buying so then you can lower. At least that's the best way to go.

Mike Kelly:          Yeah. I was going to say I think I see it more often in the other side of that, where it's under priced, because there's a fear to become the premium priced product and that it's hard to ration it up over time.

Kim Saxton:        Maybe I just have a narrow set of startups I've worked with, but it seems like I see more premium prices and you're like, "Is someone going to pay that?" But at least thinking about the pricing from the value it creates, so being able to say, "Because it's different and better, this is the value that's created in this," and capturing that value is a good thing to do.

Mike Kelly:          Are you a believer in the 10x rule for pricing, that the price of the product should be roughly one 10th of the value that it creates? I can't even remember who... is that a base camp thing? That might have come out of base camp.

Kim Saxton:        I never heard that rule, and I would probably disagree with it.

Mike Kelly:          Yeah? All right.

Kim Saxton:        What I've heard, the more common rule we use in marketing, anyway, is that if you identify what the incremental value is, you split it with the customer, because it would be greedy to take all of it, but you deserve a good portion of it just because you created the value. That's sort of the rule I recommend, is really be able to say, and I'll give you an example of a piece of a software maybe that runs fast, makes a processor run faster, than that means you need fewer units, which would need fewer licenses, which need fewer electricity, and maybe a little reduction in the labor that you need to maintain it. So, you figure out that cost stream for a year and then divide it in half, and that would be the incremental value of this piece of software.

Mike Kelly:          Got it. Interesting.

Kim Saxton:        It's called value in used pricing.

Mike Kelly:          Yeah, yeah.

Kim Saxton:        We go over that in the book. The other thing I think sometimes startups forget to do is to think about pricing not as just a single transaction, but also a stream. Is there a way you can convert from a single transaction to a stream? That often requires value added services or products that maybe get rolled out over time. I'm not talking about subscription boxes because they have their own churn problems. The last thing in pricing we talk about is the idea of being dynamic in your pricing, that as demand increases, are there opportunities to price a little higher, and when demand is less, then you should be willing to discount, and identifying.

Kim Saxton:        Maybe that means different pricing plans, which I explain to our freemium model, but thinking more broadly about pricing not as a single point, but as a strategic point that has alternatives and back to your customer, what's in the customer's best interests.

Mike Kelly:          Outside of maybe pricing too high or too low, what are some of the biggest mistakes or gotchas that you see early companies make that then lead to... it creates a hidden debt. Right? It leads to a problem down the road that was maybe completely unanticipated.

Kim Saxton:        Two things that come to mind there. First is the whole freemium model. You know? You really have to think carefully about how do you differentiate something that's worth paying for, that goes back to your target customer, and can they role in and out of freemium. Where are the upgrades? Because otherwise you get a lot of users that pay nothing. So, unless you're selling eyeballs, you've got a media advertising business, then that's not very good to have a bunch of people who use something for free. So, being very cautious about that freemium model.

Mike Kelly:          What's the second one?

Kim Saxton:        The second one is not recognizing when you have variable costs that are not linear. In the traditional model of products, every unit that I make has certain variable costs associated with it. So, every unit deserves incremental pricing. The same thing kind of happens now with thinking that... like, user base. X number of users is this much, X number of users is that much. Well, if the costs per user are not linear, then charging people for that is something that will reduce their demand and causes them to think about price instead of usefulness of the product.

Kim Saxton:        I just noticed that this week, Drift, for example, if you know Drift, they've created a software that sits on your website with chat bots and you call it conversational marketing, they just announced a reduction of the per user fees because they realized that your goal is to have everybody using it. If you make me think about how much each incremental user costs me, well then I'm going to use it less. The costs to them are really not linear to the number of users. So, thinking about what makes sense for up charges that you can rationalize to customers, customers will go with you if they don't think you're taking advantage of them.

Mike Kelly:          Yeah. One of the things that I know in a couple of our startups we've struggled with a lot early on is trying to think of pricing not in our terms but in the terms of the user base. Right? So, in real estate software, in real estate they don't think in terms of per user, they think in terms of deals. Right?

Kim Saxton:        Right.

Mike Kelly:          So, can you get your pricing to mimic what they do? In water treatment, waste water treatment, they don't think of users. They think of gallons of water pumped. Right?

Kim Saxton:        Right.

Mike Kelly:          So, can you tie your pricing to the amount of gallons that a municipality might have from a flow perspective? Just even thinking about not... I mean, you're a SAS company, of course. You always want the best economic denominator that's going to work for you. Right?

Kim Saxton:        Right.

Mike Kelly:          Maybe it's easy to think for you as a SAS company, maybe it's easy to think of users because that's who you have to support, that's who you think you want in terms of data storage, it's where all the complexity is in your world, but trying to get a price that's in the language of the customer can be some of the ways that you can even flip that a little bit and you're even getting them to buy into the idea of the problem that you're trying to solve maybe even a little bit better.

Kim Saxton:        Right. That will also demonstrate your knowledge of them and you'll probably do a better job of identifying what the product has to do, and you'll then know how to message to them. There's a lot about putting on the customer's headset and looking at the problem the same way that they do, that would be beneficial across the four piece.

Mike Kelly:          Yeah.

Kim Saxton:        Now, of course, there are times when there are linear costs per user.

Mike Kelly:          Right.

Kim Saxton:        Yeah. So, you should charge for those. A great example is a market research, Qualtrics, they're a unicorn. The basic software is one price, but if you want them to buy sample for you, there's an individual respondent price. But if I am not buying sample for them, I could have a million people take my survey, or I could have five people take my survey, that's going to be the same cost to me, which is the way that it should be.

Mike Kelly:          Right. All right, if people want to learn more about The Titanic Effect, if they'd like to buy a copy, where's the best place for them to do that?

Kim Saxton:        As much as I hate to say this, the best place to buy The Titanic is on Amazon, and that's because that if anyone lowers price anywhere, Amazon matches it almost immediately, and they'll probably have some fairly quick delivery as well, so you have those two advantages. But the book is available on six different online book sellers, so Barnes & Nobles, Books a Million, Indigo, Powell's and Indie Books, I think it's called, the last one. You can buy from whichever is your favorite.

Mike Kelly:          Okay.

Kim Saxton:        But unfortunately you won't get it until June 12th. It comes out on June 11th, so get your pre order in now if you want to have it in your hot little fist, or if you're in the Indianapolis area, we have a book launch party on June 12th and you can pick it up there.

Mike Kelly:          Awesome. If people would like to get a hold of you because they have some questions for you, how can they do that?

Kim Saxton:        There are two ways that you can do that. First you can reach out to me at the Kelley School of Business, so my email address is mksaxton@iu.edu. They can also go to the website, titaniceffect.com, and they can contact us through that website as well as subscribe to the newsletter. You get our ideas every week, what you need to know in startup world.

Mike Kelly:          Awesome. Kim, thank you so much. This has been a lot of fun.

Kim Saxton:        Okay, thank you.