Jul
11
Consumer Value Calculus
In marketing, value is usually defined as the utility that consumers derive from the consumption of a good or service. Going a step further, value resides in the package of benefits delivered by an organization to an individual through the medium of a product or service.
Of course, there is something of a tangible exchange involved in the delivery/consumption of value — the organization gets money and the consumer gets an object or service — but ultimately, even if the product is a hard good, much of the value in the transaction is perceptual or experiential. We, as consumers, buy a future expected experience.
So value, like beauty, is in the eye of the beholder, and the utility derived from a product or service is not a fixed, absolute value, but is rather a fluid calculation by the consumer at the interface of the perceived product/service benefits.
As consumers, we take in the mix of functional, emotional and self-expressive benefits and do our own subconscious math. Will the product/service solve my problem? How will it make me feel? Will it say something about me that I find meaningful? The answers to these questions vary from consumer to consumer, and from time to time. What I may value, you may not. What I may value today, I may not tomorrow.
Against this consumer value calculus, obviously, we attach a price. When we set a price for a product or service, we are most often setting a threshold, and not an absolute value. If I set the price of my product at $100, I am thinking about competitors, profit and so on, but I’m also expecting that my target consumers will do their private value calculations and determine that the expected utility of my product meets or exceeds that $100 threshold.
Okay, so I’ve just turned marketing common sense into something very abstract. But I want to emphasize the importance of this “consumer value calculus” to product development and marketing in general. The more we know about it, the better we are able to develop and deliver a package of benefits that will drive business growth.
Effective product development has to mean more than features and design. It has to extend beyond functional benefits if we are to innovate our offer and to create enduring brands. It has to take into account the values and lives of our consumers. Effective marketing means much of the same.
If one could work out a formula for this value calculus, it would be useful for product development and marketing both. I’m not sure what the equation would be (if someone knows, let me in on it), but the variables are likely to relate to the benefit package — functional, emotional and self-expressive. You would likely need to weight the variables based on the product category and the target consumer.
Lacking an equation for consumer value, a qualitative approach seems apt. Usually, consumers do the internal math at every brand or product touch point. When they see an ad. When they read an article. Even at the point of decision, right there at the store. At any of these touch points, we can do research. We can ask consumers to respond to the product, capture their value assessments and ascertain what factors are most meaningful. Then, product developers and marketers can take that insight back to the office and engineer a better value package, as well as the communication strategy to support it.
Is anyone doing this kind of “value calculus” research? If so, please share with me. Or if there’s a formula out there, let me know that too. Otherwise, I’ll have to work it out myself!
