When Signaling Fails

Tuesday, June 16, 2015

Suppose I told you that I had earned a black belt and a Fields Medal. The black belt would likely lead you to believe that I am an expert martial artist. Odds are you're unfamiliar with the Fields Medal, so (based upon context) you'd probably assume it was another award for my extreme martial arts prowess.

How wrong you'd be!

The black belt is often no more than a sign that a student has merely mastered the basics of the art, often after only a few years of study.

The Fields Medal, on the other hand, has absolutely nothing to do with martial arts. It's actually one of the most prestigious awards in the field of mathematics. Though it is unknown by most outside the field, it's a powerful signal to fellow mathematicians that its recipient is someone worthy of respect. As I suggested in What King Snakes Can Teach Us About Pricing, a signal's sole value resides in the response it generates from others. Why should anyone invest the years (or even decades) required to generate a signal that his recipient will not understand? A far better approach is to use signals that are overvalued by recipients.

Many technology companies attempt to signal value through technical specifications. This strategy may prove effective when marketing to fellow techies, but does the average person know if five megapixels signals a high quality camera? Does the average car buyer know whether 130 Newton meters of torque demonstrates good handling?

Today I passed by a few ladies oohing and aahing at a British man's exotic accent. To them, his unusual speech patterns signaled worldly knowledge and sophistication. Little did they know that the man's north London accent would act as a strong negative signal to those in his native land. Not only can signals be undervalued, they can be overvalued as well.

So what is a company to do? Should it use its current signaling and hope for the best? Should it avoid signals entirely?

Certainly not! Companies must merely look to their desired customers. What signals do their customers expect? What types of signals generate a positive response from them? You may be offering great products, but ultimately it's your customers (and not you) who will make the decision as to whether or not they should be purchased. A car manufacturer may not think that beautiful door mats signal a well designed car, but if his customers believe to the contrary, he will have to adjust his signaling accordingly.

This blog serves as a signal that I provide insightful commentary on pricing, positioning and monetization. Should you agree, don't forget to pick up a copy of my book on how to price software. It's a great discussion on how to price your next software product. Oh, and I'm always open to consulting opportunities.