People’s price-value calculation for personal purchases includes objective criteria such as price, warranties, and service levels, but other, more subjective criteria also figure in.
Marketers have generally focused on managing the price side of that equation. But that’s the easy part because a pricing strategy usually involves managing a small set of numbers, and pricing analytics and tactics have evolved considerably. The tricky bit is determining what consumers value.
Is there a way for leadership teams to enhance value, whether functional (reducing risk, reducing cost), or emotional (wellness, reducing anxiety)?
The discrete choice analysis technique simulates consumer demand for different combinations of product features, pricing, and other factors. There are also a few other equally powerful and helpful research techniques, but they are designed to test consumers’ reactions to preconceived notions of value —concepts managers are used to judging. But, to develop new concepts, you need to anticipate what else consumers might find valuable.
A brand with the right insights will encourage consumers to try new brands, build customer loyalty, and produce sustained revenue growth. It will help the company to develop new ways to deliver value through its products and services. Even though an individual’s opinion of a product’s value or benefit is shaped by their perspective, universal building blocks of value exist, creating opportunities for businesses to gain a competitive edge in current or new markets.
B2C marketers can avoid the commodity trap by understanding consumers’ range of rational and emotional considerations, tailoring their value proposition to what consumers prize the most, and sharing content that thoughtfully addresses their concerns.
Is people’s price-value calculation for workplace negotiations different from a personal purchase? Not really. If you are interested in knowing the 40′ elements of value’ in the B2B environment, please read my article, How to avoid the commodity trap in B2B Marketing content?
30' elements of value' in the B2C environment
To help B2C companies (in our target niche of industries) better understand consumer priorities, we followed in the footsteps of Bain & Company, a Boston-based management consulting firm, and examined scores of qualitative and quantitative customer studies for our clients and analyzed what their consumers value most. In our studies, we employed their interviewing technique called laddering, a well-known technique that probes consumers’ stated preferences to determine which elements of value drive them.
It is critical to explore what underlies a consumer’s statement about an attribute of a specific product or service important to them, and not just accept it on its face. For instance, when a patient states her hospital is ‘affordable and convenient’, its value derives from a combination of functional elements such as saves time (online tools schedule appointments instantly), reduces cost (comparatively low physicians’ visitation charges or no charges for consultations), avoids hassles (short or no wait times at the doctor’s offices, hospital waiting rooms, etc.), simplifies (clear and accurate information for services and procedures) and informs (provide helpful information about diagnoses and conditions).
When the owner of a Rolls Royce talks about the strength, prestige, and refinement of the brand, the underlying life-changing element is affiliation/belonging, arising from the pride of owning a car that has always been owned only by the elites. Therefore, every value is rooted in a deep-seated emotion.
There are 30 “elements of value“, and they fall into four categories:
- Social impact
Some of these elements are more inwardly focused, like addressing consumers’ personal needs. For example, the social impact element of self-transcendence is the foundation of Johnson & Johnson’s sustainable baby care products. The feeling of contributing to saving this world for themselves and their descendants is a value that matters to Johnson & Johnson’s consumers.
Other elements are outwardly focused, helping consumers interact with or navigate the external world. For example, the functional element of value organizes is central to the manufacturers of soaps, detergents, household chemicals, and paints because they help consumers deal with complexities in their external world.
Once you have integrated your consumer’s preferred values with your value proposition, you must develop a 4-tiered content strategy addressing the four levels of the value pyramid: Functional, Emotional, Life-changing, and Social Impact. It will help you create content that resonates with your target audience and grows your business in leaps and bounds.
Note: Our target niche of industries are Healthcare, Automobile Manufacturing, Chemical Manufacturing, Energy and Renewables, and Blockchain, Web 3.0, and Metaverse.
The 'elements of value' pyramid
As a marketer, you must be aware of Abraham Maslow’s “hierarchy of needs,” in which he argued human actions are motivated by an intrinsic desire to fulfill needs ranging from the primary (security, warmth, food, and rest) to the complex (self-esteem and altruism). This ‘elements of value’ architecture provide insights into people as consumers and their motivations to purchase and use products and services.
Interpreters of Abraham Maslow’s “hierarchy of needs” organized these 30 ‘elements of value’ as a pyramid structure. The pyramid begins with physiological and safety needs at the base and ends with self-actualization and self-transcendence at the top. Getting to the top requires meeting values at the bottom first. Though this is a popular viewpoint, marketers must take a more nuanced view to realize that numerous patterns of fulfillment can exist.
The ‘elements of value’ pyramid is an empirical rather than a theoretical model, according to which value is ranked in ascending order of importance. A company must provide some of the functional elements required by a particular product category before it aims for higher value levels. Many combinations of elements for successful products and services have likely been around for centuries, though their manifestations have changed with time.
In different industries, cultures, and demographics, elements of value have different relevance.
For example, self-transcendence or affiliation/belonging may mean little to car purchasers in underdeveloped nations, whereas reduces risk and reduces costs are crucial to them. Social impact or life-changing elements have been out of reach for most consumers throughout history since most focused on survival. But anything that reduced effort and cost and saved time was valued.
In an ideal situation, a value proposition must include one or more elements from each level of the pyramid, but it’s unrealistic to incorporate all elements from all levels. When a value proposition is developed based on consumer research, it becomes more compelling.
Then you develop a 4-tiered content strategy to address those elements to make your content relevant and irresistible.
Impact of elements of value on a company's performance
To better understand how delivering on the elements impacts company performance, specifically customer relationships and revenue growth, you must hire a marketing information company to study consumer motivations. One such name is Research Now, an online sampling and data collection company. Collaborating with them can help you successfully conduct surveys with thousands of consumers about their perceptions of companies in your niche.
In our surveys for specific industries, we asked respondents to score the competitor from whom they bought a product or service during the previous six months. We used a 0-10 scale for each element to track the responses. For competitors with major brand divisions, we conducted separate interviews focusing on those divisions.
When we analyzed the results, we found relationships among these rankings, for example, a relationship between each company’s Net Promoter Score (NPS) and the company’s recent revenue growth. NPS is a widely used metric for customer loyalty and advocacy.
Our research shows companies that perform well on multiple elements of value have more loyal customers. Companies with high scores (8 and beyond) on four or more elements have, on average, three times the NPS of companies with just one high score and 20 times the NPS of companies with none. It is better to have more elements in a product or service than to try to incorporate them all. You must choose the elements strategically.
We also found that companies doing well on multiple elements would grow revenue faster than others. It is indeed true that higher and sustained revenue growth is closely correlated with solid performance across multiple elements. Four or more high scores were associated with four times greater revenue growth than one high score only. To be a winning company, you must know how to compare with competitors and choose new elements methodically.
The three patterns of value creation
Companies must manage the value side of the equation more directly and for that, they need to understand how the elements translate to successful business performance.
The questions regarding the elements of value marketers should ask themselves are:
- Are some of them more important than others?
- Do companies have to compete at or near the top of the pyramid to be successful?
- Can they succeed by excelling on functional elements alone?
- What value do consumers see in digital versus omnichannel companies?
Pattern 1: Not all elements are of equal weightage
Studies on data from the surveys identified three patterns of value creation. In every industry we work with, perceived quality plays the most significant role in customer advocacy. Products and services must attain a certain minimum level of quality; no other elements can make up for a considerable shortfall in quality.
After quality, the critical elements depend on the industry. In food additives, sensory appeal, not surprisingly, runs next to quality in the order of preference. In luxury cars, affiliation/belonging and self-actualization are the elements that matter. The broad appeal of cosmetics stems from how they deliver multiple elements, including reduces risk, attractiveness, therapeutic value, reduces anxiety, and provides hope. Manufacturers of these products – for example, L’Oreal, Dior, and Clinique – had some of the best value ratings of all companies examined.
Which Elements Are Most Important?
What customers value in products varies by industry, and it is impossible to mention all of them here. The following illustration shows some examples of how customers’ product value varies by industry.
Pattern 2: Consumers believe digital firms offer more value.
A well-designed online business makes consumer interactions easier and more convenient. Mainly digital companies thus excel in saves time and avoids hassles. A significant number of consumers prefer them.
Pattern 3: Certain elements can still be won by brick-and-mortar businesses.
Some emotional and life-changing elements make omnichannel retailers successful. For example, they score twice as well as online-only retailers on badge value, attractiveness, and affiliation/belonging. Customers who receive assistance from store employees give much higher ratings to those retailers; emotional elements probably helped keep some store-based retailers in the business.
Moreover, on average, companies that score high on emotional elements tend to have a higher NPS than those that spike only on functional elements. The coupling of electronically and physically distributed channels is more robust than either alone.
Putting the Elements to Work
Apart from being intriguing, these patterns shed light on how some companies have chosen to navigate upheaval in their industries. In the end, however, the elements must help address business challenges, particularly revenue growth. Investing in the elements that define a company’s core value will help them stand out from the competition and meet customers’ needs better. Their value proposition can also be expanded by judiciously adding elements without overhauling the product or service.
Even though many successful companies have intuitively found ways to deliver value as part of their innovation process, it becomes more difficult as companies grow. In most large organizations, leaders spend less time with customers, and innovation slows down. It may be possible to re-identify new values with the help of the elements.
Some companies have refined their product designs to include more elements.
Other companies have used the elements to identify where customers see strengths and weaknesses. The first step is determining which elements are most important for their industry and how they compare with their competitors. Companies that trail in crucial elements should improve on them before adding new ones.
The greatest commercial potential of the ‘elements of value’ model lies in developing new value types. The additions are most effective when they can be delivered using its current capabilities, making a cost-efficient investment, and when the elements align with the company’s brand. However, it’s not always so obvious which elements to add.
For value elements to work, leadership must recognize them as growth opportunities and prioritize them. This model can help with the development of new products and the addition of new features to existing products. There are several questions managers might ask, for example: Can we develop new ways to connect with consumers? Can we integrate our software with other applications to benefit our consumers? Is it possible to add therapeutic value to our service?
In demand management, pricing is one of the most critical levers because higher prices lead to an increase in profit when demand is constant. When discussing raising prices, consideration must also be given to the effects of higher prices on consumer value equations.
Many companies segment their customers into demographic or behavioral groups, which allows them to analyze each of these groups’ values and then develop products and services accordingly.
Whenever an opportunity arises to improve value, managers should survey current and potential customers to determine the elements they are (or are not) delivering. There is a possibility that examining the product and the brand will yield different insights, so the survey should cover both. It may be the case that the product delivers plenty of value, but customers have trouble getting service or technical support.
There is also an organizational dimension to value: Someone in the company should be tasked with thinking about, managing, and monitoring value.
While the concept of value is rooted in psychology, the elements of value can make it much less amorphous and mysterious. Abraham Maslow highlighted the bold, confident, and positive potential of psychology. By creatively adding value to brands, products, and services, managers can gain a competitive edge with consumers, the true arbiters of value.
The complete list of the 30 elements of value for your quick reference
Level 1: Functional elements
- Saves time.
- Makes money.
- Reduces risk.
- Reduces effort.
- Avoids hassles.
- Reduces cost.
- Sensory appeal.
Level 2: Emotional elements
- Reduces anxiety.
- Rewards me.
- Badge value.
- Therapeutic value.
- Provides access.
Level 3: Life-changing elements
- Provides hope.
Level 4: Social impact elements