THE PRICE OF SUCCESS IS MORE THAN DOLLARS AND CENTS
Undoubtedly, you value your customers.
Do your customers equally value your product or service?
The answer to the above question has serious implications for the long-term loyalty of your customers. Consumer Value is at the heart of your growth and success.
What is Consumer Value?
Way back when, there was a comedian, Jewish of course, whose shtick was his extreme penny pinching. In a classic scene, he is held up at gunpoint.
“Your money or your life.”
“I said your money or your life.”
Fully exasperated – “one last warning, your money or your life.”
Long pause, then, “I’m thinking, I’m thinking.”
The message in this scene transcends comedy. It goes to the very heart of business, yours included, whether B2B, or B2C.
The purchasing process, whether a product or service, is an exchange process. The consumer is exchanging dollars for your product or service.
For him to do so, he has to believe that you are offering a value he perceives as making the exchange worth his coinage.
“Your money, or your life.”
This perceived value incorporates far more than dollars and cents. It is his perception based on subjectively appraised product or service benefits against subjectively appraised sacrifices.
As The Harvard Business Review explains, when consumers evaluate a product or service, they weigh its perceived value against the asking price. That perceived value guides the purchase decision.
Consumers perceive value of the asking price according to their view in the world. It does not matter what price the consumers pay; it is what they are willing to pay and what they get in return. They assign value to a product or service based on several factors, such as quality, service, price, brand, points of differentiation, the function of a product along with their existing relationship, and personal bias.
There are variations on the exact definition of Consumer Value but there is a general similarity.
- Value is what a consumer prefers and the act of evaluating the product’s attributes, performance, and consequences, and whether they successfully fulfill the customer’s goals and purposes in situations they require them.
- A consumer makes a choice based on various consumption values, including functional and conditional value. These consumption values are independent and each value acts as different contributions in any situation a consumer must make a choice.
The price you place on the product or service does not define consumer value.
To your customer, it is not just a $100 bill he is handing you. It is an exchange of the effort required to earn it, the options he had for using it, the sacrifice he is making by not choosing one of those options, the impact the exchange will have on his financial, family and personal circumstances and more. He is taking all those factors into consideration.
He is thinking.
He is thinking about the value of the $100. The value measured by the tangible and intangible costs against the tangible and intangible benefits.
As an example, the car he is buying has an anti-skid option, a tangible benefit. But he is considering that his family will be protected in hazardous weather – an intangible, or emotional, benefit. On paper, the option is beyond his planned budget. But in his heart, he places a value on family safety and perceives the additional expense to be a fair value.
Consumer Value reflects all factors that weigh in on the exchange. His satisfaction or lack thereof determines his repeated business and loyalty.
Given that Consumer Value includes intangibles, and the final perceived value is subjective, how can you determine whether the consumer will perceive your exchange as having a positive or negative Consumer Value?
Research is essential. You need to find out what your repeat customers think and feel about your product or service by asking, through surveys, and through the data you’ve accumulated.
And you should take advantage of a tool that will provide a holistic view of your Consumer Value.
In 2004, Dr. Alexander Osterwalder, a Swiss business theorist, developed the Value Proposition. It is a tool that can help ensure that a product or service is positioned around what the customer values and needs.
The Value Proposition is a framework designed to ensure that there is a fit between the product and market, taking a meticulous detailed look at the relationship between customer needs, wants and concerns and your value propositions.
The Value Proposition is formed around the two elements in an exchange – the customer profile and your value proposition. In simplest terms, it is a tool where risks and pains are measured against gains and benefits.
- Gains – the benefits that the customer expects and needs, what would delight customers and the things that may increase likelihood of adopting a value proposition.
- Pains – the negative experiences, emotions, and risks that the customer experiences in the process of satisfying his needs and wants.
- Customer jobs – the functional, social, and emotional tasks customers are trying to perform, problems they are trying to solve, and needs they wish to satisfy.
- Gain creators – how the product or service creates customer gains and how it offers added value to the customer.
- Pain relievers – a description of exactly how the product or service alleviates customer pains.
- Products and services – the products and services that create gain and relieve pain, and which underpin the creation of value for the customer.
After listing gain creators, pain relievers, products, and services, each point identified can be ranked from nice-to-have to essential in terms of value to the customer. A fit is achieved when the products and services offered as part of the value proposition diminish or remove the most significant concerns and pains from the customer profile.
Here is a sample Value Proposition for Airbnb that incorporates homeowners and renters.
Products and services:
- Marketplace for renting out short-term living space.
- Aggregation platform for activities to do in a new city.
- Multiple options across price ranges
- Host incentive policy
- Cheap accommodations
- Exotic and home-like spaces
- Airbnb rewards for referral
- Monetary cancellation for cancelled booking
- Vetting of hosts and guests
- Guarantee for quality accommodation
- Possibility to write reviews, blacklists hosts and guests
- Save money
- Have a lot of options
- Meet interesting people
- Get a local experience
- Flexible booking and cancellation
- Uncertain quality of accommodation
- Sharing space with strangers
- Safety concerns
- Make additional money by renting rooms
- Cheap accommodations
- Hassle free and safe booking
AirbnB counters the major concerns about safety and quality through reviews and vetting. Without those features, the benefits of cheap accommodations in exotic locations would provide a very weak Consumer Value, perching on being negligible.
Your Value Proposition provides you with a holistic view of your proposition. It prevents you from being narrow focused on one or limited aspects of your proposition. It forces you to consider the weakness, i.e., the pain, and consider whether you are offering remedies.
Most critical, it brings your potential customer into the consideration. Major corporations today have created an executive position – Customer Representative. The CR exec attends all planning and development meetings and follows through after the product or service is launched. His role is to evaluate all considerations and decisions from the perspective of the target customer – to measure the pains against the gains and benefits. He is a counterpoint challenging the company’s assumptions about the Consumer Value.
Your Value Proposition is bringing the Consumer Representative into your planning, decision and operations.
Consumer Value is the benchmark for whether you will experience repeat business and customer loyalty.
Value Proposition is a benchmark tool for evaluating your Consumer Value.
Interested in developing your creative thinking skills to grow your business? Maybe even disrupt your business category? Subscribe to my “Unleash Your Creative Thinking” free email course. Email email@example.com, with “Creative Thinking” as the subject.
Chanina Katz has over two decades experience in major Madison Ave. ad agencies developing highly successful strategies and award-winning campaigns for such blue-chip clients as Colgate, RJ Reynolds, Hilton, Home Depot, General Mills, KFC and many others in a wide variety of package goods and services businesses. He provides marketing services for a range of businesses, from start-ups to major corporations. He lectures on marketing and creativity. He can be reached at Bullseyemarketing1@gmail.com.