This is part of a series of reflections inspired by my courses at HBX, an online business school cohort powered by Harvard Business School. With Business Analytics, Economics for Managers, and Financial Accounting, I'm learning the fundamentals of business. Find the whole series here.
We forget to pay attention to demand. As a marketer, that's our primary goal: demand generation. But what does that even mean? Colloquially, we know that it's tied to desire. People want to buy what you have to sell. But how much do they want it?
Willingness to Pay
In business, we need numbers. We can quantify this as "willingness to pay," or the maximum amount someone will pay for a particular product or service. Willingness to pay (or WTP, for short) isn't actually affected by price, as you might think. Whether the price of that must-have Apple watch is $500 or $100, your WTP is the same.
When we think about demand, we're really thinking about an amalgamation of what "everyone" in our market is willing to pay. If price doesn't matter, what does?
- It's out of your control (most of the time). There are factors we can see and understand, like age, weather, gender, and income. We can track them. We can classify them as personas and target them.
- But then there's unobservable ones, too. Personal preferences, number of close substitutes, or intrinsic value to the person. The switch from wanting something to needing it.
The Marketer's Challenge
Enter the marketer. How do we influence willingness to pay so that the product or service we're marketing has more intrinsic value? That they prefer it? That even though there might be close substitutes, it's ours that they want?
That's the challenge. Creating a brand so powerful that you couldn't imagine choosing any other product to fill your needs. In terms of the demand curve, we classify that by elasticity, or the price sensitivity of demand. When you raise or lower your prices, how easy is it for people to jump ship to a competitor? When something is inelastic, that means you HAVE to have it. Nothing else will do.
Think of your Macbook. If someone offered you a PC, even for half the price, Apple is banking on the fact that you'd never take that deal. It's a Mac or nothing.
Contrast that with something like ice cream. Sure, you can have your favorite brand, but at the end of the day, wouldn't you rather have some ice cream than not have it at all? It's fairly elastic. You can find lots of other substitutes, and you don't necessarily prefer one to the other. We can all find flavors we like, even if it's not our favorite.
As marketers, we often focus on the tactics without remembering the big picture. Everything has to go back to increasing consumers' willingness to pay, and strengthening their preferences for what we sell. We have to build something that people start to need rather than want. Something undeniably ours.
Without that, we're just a bunch of marketers tweeting into the void.