Developing a phenomenal product that delivers value to users and helps capture value for organizations requires a deep understanding of users. In come ‘User personas’ — a representation of target segment/users. Personas allow us to develop features that can best serve the users’ needs, give organizations a common language to talk about their users instead of using themselves or their friends as the user of the product, help design, recruit and align the right people for their qualitative studies, and give marketing a means to craft the right message — What to say, when to say, and how to say it to attract the right users into the funnel.

Many organizations, especially startups well past product market fit, struggle to get to a stage where they define personas for their products. But worse off are organizations that in an attempt to join the bandwagon of defining personas recruit an external agency or create a task force to define user personas. These external agencies perform market research, define three-four user groups and give them fancy names. The whole organization celebrates this new milestone but eventually no one uses these personas.

Why — despite being intentional, do these organizations fail to define personas that are used by organizations?

Here are few reasons that I have come across observing a few teams develop personas:

1. Trusting a third party to do the work that you were supposed to do: There are certain tasks that a company should outsource but there are certain tasks that in my opinion do not make sense in being carried out by a third party. Consultants and market researchers often develop personas that are obvious user attributes mostly demographic, rarely behavioral and hardly linking it to internal data. The personas that thus develop do not serve any practical purpose such as to create different messaging, features, or more importantly pricing. Asking an agency to do the work for you is like saying that we do not understand who our users are and we hope someone else can help us do our job.
2. Qualitative and Quantitate view: Developing personas has always been user research/design/marketing’s task, rarely involving product managers and/or analytics. Resultant, what you get is a qualitative view of the user and not their analytical behavioral footprints. As a result even when personas are created, analytics/data science finds only one of the user group mostly using the product. This leads to personas if at all rendered useless or everyone talking about only one persona.
3. Objective of personas: Teams developing personas forget the objective of personas to begin with. The objective was not simply to cluster your users into logical but non-usable clusters but also to have clusters that the organizations can serve differently, target differently, and capture different value from. For example, users of products who are relatively price insensitive, costly to serve, and poorly served by competitors can be charged more than customers who are price sensitive, less costly to serve, and are served well by competitors.

In absence of a coherent persona-monetization strategy mapping, firms are forced to serve all customers with one price or a standard markup (Cost plus pricing). Inevitably this leads to a trade-off between gross margin and volumes. Some customers thus get product at a price much lower than their true willingness to pay (WTP), while some customers cannot get the product even though lower price would be sufficient to cover variable costs. This leads a gap in market that a new entrant might leverage to capture the segment and use it as a launch pad to attach the upper segments.

A misaligned persona-monetization strategy is where the biggest gap comes and this is what is the objective of this article.

How do you know if your personas need to be re-evaluated to enable the organization for pricing personalization?

The best way is to ask your team these questions and see how many answers you get:

1. Ask your sales/pricing team — do different persona segments have different WTP (Willingness to pay) for your product? What is the margin of persona 1 vs persona 2?
2. Ask your marketing team — Do different personas have different customer acquisition cost (CAC)? What messaging is working for which persona?
3. Ask your product/design team — What features are most valued by one persona and what features are valued more by the other persona?
4. Ask your Product/analytics team — Which persona is more active and which persona has converted the most in last 7 days vs last 30 days?
5. Ask your customer success team — Which persona requires maximum hand holding or is costly to serve? Which personas are the happiest and which personas complain the most?

If your team can answer these questions, congratulations!

How to create personas so that value based differentiation can be used?

To be able to use pricing as a lever requires user segmentations that have different willingness to pay and value different features differently. It is not enough that these groups have different motivations for using your product but it is equally important that they want to use your product differently and attach different values for the various features.

The right persona definition sits at the intersection of qualitative attributes — to be able to craft a good communication strategy, quantitative attributes — so that you can look at product usage and personalize product attributes and incentives accordingly and at times in real time, and monetizable attributes — so that you can use pricing as a lever to differentiate the value delivered and the value captured.

So here are the steps to creating personas the right way:

Step 1: Create a cross functional team within the organization defining the appropriate decision rights — management rights and control rights: The team should include user research, market research, Sales and Customer Success, product management, product designers, product analysts, and data science representatives. In short, it is a team sport.

Step 2: Persona is a marriage of qualitative and quantitative attributes: While it is important to understand basic segmentation criteria from qualitative perspectives such as demographic, psychographic, and behavioral attributes, it is equally important to understand analytical signature of users using the product or potential target customers. Developing the right qualitative and quantitative attributes will be key to using digital footprints on product to serve the customers dynamically — better incentives, better recommendations, and eventually enhanced customer journey through the funnel.

Step 3: Identify discriminating value drivers: The goal of user segmentation is to divide the potential user groups into clusters so that while each cluster behaves identically, users across two different clusters have different buying behaviors and needs. Knowing which features drive more value for one persona vs the other will provide a means to differentiate products based on user

Step 4: Identify what are the various operational constraints and/or advantages: Just knowing what features are valued by a user is not enough, knowing the other part, which is internal capability and cost of delivering the feature is equally important. For example, if a customer group values customized software support, but the volume does not justify customization then serving the customers may be a value destroying proposition for the company. Knowing what are your competitive advantages over you competitors, what are you good at, and what customers value the most allow developing packing and pricing offering that not only create value for the organization but also for the organization.

Step 5: Socialization of personas with the entire organization: You developed personas. Great! Job well done! However, limiting persona development to a company wide all hands is not enough, it is important to socialize within the organization. Some steps that can be taken is toa) Put personas posters/collaterals on the walls where everyone can see. While marketing’s job is to use that to create external collateral, it is equally important to develop collaterals that can be used internally.b) Product/Design specifications and one pagers to include user personas: When developing product specs, product managers should identify and specify which personas they want to target.c) Create labels in Jira: Engineers should know the persona they are developing for.d) A/B testing and Pricing analytics dashboard: Look at the segmentation of your A/B test and develop separate dashboards for your personas. Do different personas lead to different margin, which persona is more active vs the others, which personas respond better to a feature vs the others and many such questions can help understand more profitable segments.

Step 6: Revisit your personas: Users change, so does your product, and so does the objective of your firm. It is important to re-visit personas every now and then and see if they still makes sense. If not, shelve the previous personas and re-develop new ones that are a true representation of your customers.

Personas should never be treated as a side project nor it is a milestone. It was a common language to bring the whole organization together to solve the user problems. Developing and nurturing personas should be the core function of the organization and is worth continued investment.

I hope you enjoyed reading this article. If you have recently undertaken the journey to develop personas in your organization, and would like to share your experience, do leave your thoughts below. Look forward to learning and growing with this vibrant community.

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Read our other articles on Product Leadership, Product Growth, Pricing & Monetization strategy, and AI/ML here.