How do consumers form their perceived value of a product or service? This is the question that Bain & Company has attempted to answer in a very noteworthy brief published by Harvard Business Review. It opens up a new perspective on perceived customer value, beyond the hackneyed Maslow pyramid. This is the subject of today’s news flash.
Perceived Value: How Customers Rate a Product or Service
Going beyond Maslow’s pyramid
According to the Harvard Business Review in which this unique article was published:
“Three decades of experience doing consumer research and observation for corporate clients led the authors—all with Bain & Company—to identify 30, ‘elements of value’.”
Maslow’s pyramid reviewed
“Their model traces its conceptual roots to Abraham Maslow’s “hierarchy of needs” and extends his insights by focusing on people as consumers: describing their behaviour around products and services.”
The beginning of the article points out that companies often focus on price, omitting other factors. This seems like an easy way out, as “raising prices directly increases profits”. That being said, price management involves many different tactics, as the authors emphasise.
Price is not the only element of customer value
A few years ago, Byron Sharp pointed out the propensity of brands to focus on lowering prices through a never-ending chain of promotions, a harmful strategy in his view, as it leads to margin loss.
However, there are many more things on Heaven and Earth than price, to be accounted for behind this notion of product or service value.
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)?
To that end, Bains’s consultants and authors propose a useful infographic. A clearer, dynamic version can be found on their own website.
Bain & Company’s Elements of Perceived Value Pyramid
The interactive version of the perceived customer value pyramid
We can summarise the different components of value as follows:
- The elements of perceived customer value that are related to the product’s features. These are the most obvious benefits (a product, a washing machine for instance, relieves you from a chore or another allows you to earn money…). Let’s take the The B2B purchasing process is the result of a long life cycle often linked to a contract as there are many people to convince. of a folding bike as an example. It has an obvious functional value. In the city, it is the fastest way to get around. Count approximately 12 mph on average for a bike, and 7 mph for a motor car.
- The emotional part of perceived customer value. A product will remind you of your childhood or reduce your stress. Or make you feel better or healthier. Buying a bike to stretch the old legs after work will make you feel great and eliminate unnecessary fat;
Changing Your Life
- Yet, your bike purchase could also be a life-changing experience. As it did for me. I ride 3,200 miles per annum and this bike positively changed the way I experience the city. I no longer hesitate to ride across the whole of Paris to go on an errand, if only for the pleasure of getting a bit of exercise. I no longer forbid myself a long detour to go to my favourite shops. Many subcategories exist within this category.
- Finally, a pinch of social impact on perceived customer value. While I’m pedalling away on my Brommie, I also feel that I’m working for future generations and helping to provide them with a more pleasant, less noisy and above all less polluted environment. Well, there’s still work to be done in that department! With my folding bike, I can also travel anywhere in the region and even further afield by putting my bike on the train.
The Influence of Context and Industries
Through this wee example, we better understand what the perceived value of a product or service is. We can also relate it to the transformative value described by Joe Pine, he who coined the phrase ‘customer experience’, in our video interview.
And Now, the Ball’s in Your Court
Elements of perceived customer value vary according to the product or service or the industry concerned. Buying a financial product has an impact not just on you but on your whole family. When you pass over, someone will inherit your savings, hopefully.
This impact is far greater than that of buying a folding bike. Even though I’m sure your faithful Brompton will be handed to someone else in the family, eventually.
And now, the ball’s in your court. All that’s left to do is to use this canvas to build a proper strategy for your products and services. One that is based on perceived customer value rather than sand.