The Elements of Value
https://hbr.org/2016/09/the-elements-of-value
When customers evaluate a product or service, they weigh its perceived value against the asking price. Marketers have generally focused much of their time and energy on managing the price side of that equation, since raising prices can immediately boost profits. But that’s the easy part: Pricing usually consists of managing a relatively small set of numbers, and pricing analytics and tactics are highly evolved.
What consumers truly value, however, can be difficult to pin down and psychologically complicated. How can leadership teams actively manage value or devise ways to deliver more of it, whether functional (saving time, reducing cost) or emotional (reducing anxiety, providing entertainment)? Discrete choice analysis—which simulates demand for different combinations of product features, pricing, and other components—and similar research techniques are powerful and useful tools, but they are designed to test consumer reactions to preconceived concepts of value—the concepts that managers are accustomed to judging. Coming up with new concepts requires anticipating what else people might consider valuable.
The amount and nature of value in a particular product or service always lie in the eye of the beholder, of course. Yet universal building blocks of value do exist, creating opportunities for companies to improve their performance in current markets or break into new ones. A rigorous model of consumer value allows a company to come up with new combinations of value that its products and services could deliver. The right combinations, our analysis shows, pay off in stronger customer loyalty, greater consumer willingness to try a particular brand, and sustained revenue growth.
We have identified 30 “elements of value”—fundamental attributes in their most essential and discrete forms. These elements fall into four categories: functional, emotional, life changing, and social impact. Some elements are more inwardly focused, primarily addressing consumers’ personal needs. For example, the life-changing element motivation is at the core of Fitbit’s exercise-tracking products. Others are outwardly focused, helping customers interact in or navigate the external world. The functional element organizes is central to The Container Store and Intuit’s TurboTax, because both help consumers deal with complexities in their world.
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In our research we don’t accept on its face a consumer’s statement that a certain product attribute is important; instead we explore what underlies that statement. For example, when someone says her bank is “convenient,” its value derives from some combination of the functional elements saves time, avoids hassle,simplifies, and reduces effort. And when the owner of a $10,000 Leica talks about the quality of the product and the pictures it takes, an underlying life-changing element is self-actualization, arising from the pride of owning a camera that famous photographers have used for a century.
The elements of value approach extends Maslow’s “hierarchy of needs.”
Three decades of experience doing consumer research and observation for corporate clients led us to identify these 30 fundamental attributes, which we derived from scores of quantitative and qualitative customer studies. Many of the studies involved the well-known interviewing technique “laddering,” which probes consumers’ initial stated preferences to identify what’s driving them.
Our model traces its conceptual roots to the psychologist Abraham Maslow’s “hierarchy of needs,” which was first published in 1943. Then a faculty member at Brooklyn College, Maslow argued that human actions arise from an innate desire to fulfill needs ranging from the very basic (security, warmth, food, rest) to the complex (self-esteem, altruism). Almost all marketers today are familiar with Maslow’s hierarchy. The elements of value approach extends his insights by focusing on people as consumers—describing their behavior as it relates to products and services.
It may be useful to briefly compare Maslow’s thinking with our model. Marketers have seen his hierarchy organized in a pyramid (although it was later interpreters, not Maslow himself, who expressed his theory that way). At the bottom of the pyramid are physiological and safety needs, and at the top are self-actualization and self-transcendence. The popular assumption has been that people cannot attain the needs at the top until they have met the ones below. Maslow himself took a more nuanced view, realizing that numerous patterns of fulfillment can exist. For example, rock climbers achieve self-actualization in unroped ascents of thousands of feet, ignoring basic safety considerations.
Similarly, the elements of value pyramid is a heuristic model—practical rather than theoretically perfect—in which the most powerful forms of value live at the top. To be able to deliver on those higher-order elements, a company must provide at least some of the functional elements required by a particular product category. But many combinations of elements exist in successful products and services today.
Most of these elements have been around for centuries and probably longer, although their manifestations have changed over time. Connects was first provided by couriers bearing messages on foot. Then came the Pony Express, the telegraph, the pneumatic post, the telephone, the internet, e-mail, Instagram, Twitter, and other social media sites.