All this discussion around my comment, "You simply need to talk to customers to learn what they really care about." OK, I admit that I was oversimplifying, and they both have a point. However...
I see customer insight like a vast ocean; there are shallow parts and deep parts. Saying that "watching is better than talking" is like saying that only the deep part of the ocean is really the ocean. Instead of either/or, I see the benefit of both/and.
Talking to customers is a very basic starting point, and I'm always astonished when I find that businesses have never tried it. They're sitting in their offices staring at a picture of the ocean on their screensavers, thinking they understand it. At least get your ass over to the water and dip in your toe.
i find that in the B2B space, you'll often find that astonishingly simple discoveries emerge just by listening to customer frustrations. You'll learn that you've been focusing on low price when they really just want better customer service. You'll learn that they don't respond to the feature of "one-stop-shop" but they do respond to the benefit of "taking responsibility." You'll learn that your big point of difference is really not relevant to customers. Etc etc etc. (Since most of my experience is B2B, that's the perspective from which I write.)
Yes, it's very productive to watch customers. Yes, it's great to delve into much deeper levels of insight. (For a very interesting approach to immersion into your customers' world, check out Radar Communications.) But it can also be productive to start with your ABCs and grab the obvious, low-hanging fruit.