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Aspect #1 – The Value Formula
This aspect revolves around the fundamental quest to find a need and fill it. And where necessary, to do it better than anyone competing against you, including substitute products or services. For our purposes, a substitute product or service is an alternative option that is dissimilar in form but capable of serving similar needs.
Economists have taken this idea and turned it into a formula. It characterizes the concept of value as the perceived benefits relative to the price or cost, as shown above.
Perceived Consumer Benefits
From a consumer perspective, the perceived benefits are usually anchored in the satisfaction of one or more customer needs and motives. These may be social, functional, physiological or psychological in origin. They may operate alone or in a complementary relationship to one another. Here’s a brief look at the basic needs and motives on our list (note: all examples are intended as merely illustrative, not exhaustive):
- Social – this category speaks to the human desire for love, acceptance and belonging. Examples include products/services that promote family, friendships, romantic attachments, social groups, communities, clubs and organizations.
- Functional – this category relates to practical and useful aids for getting things done. Examples include tools, systems and equipment that assist in performing a task, or overcoming obstacles and challenges.
- Physiological – this category pertains to anything characteristic of or appropriate to an organism’s healthy or normal functioning. Examples include water, food, sleep, breathing, sex, exercise, vitamins, medicine and healthcare.
- Psychological – this category speaks to anything that fosters a sense of well-being, goodness or esteem. Examples include cosmetics, entertainment, nice clothes, luxury items, education, insurance plans, safety measures and financial security.
When thinking in terms of perceived benefits, be careful to note the difference between the features of a product/service and its benefits. A feature tends to be the vehicle for producing a benefit. A benefit, on the other hand, addresses customer needs and motives; it furnishes the sense of fulfillment the customer derives from using or experiencing a feature. For instance, a restaurant may feature fine cuisine, but fulfillment rests with the social, physiological and psychological benefits that attend a truly satisfying culinary experience.
The price or cost variable in the value formula represents what someone is willing, able or authorized to give up in exchange for the perceived benefits. It can take the form of a money investment, time investment or energy expenditure.
It’s worth noting that willing and able pretty much work hand-in-hand. For instance, some people are willing and able to pay a premium for convenience or prestige. Others may be financially able but unwilling to pay it – perhaps they’d rather exert extra time and energy to hunt for a bargain; or they simply don’t feel the cost is justified. And still others may be willing if only they were able.
As you can see, the value formula speaks to the dynamic interplay between motives, needs and price. They are the levers for creating the perception of value from a consumer perspective.
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