Why Do Customers Buy?

Factors Influencing Customer Value

The Burning Question…….

Why do customers buy, from us, or from our competitors, or not at all?

Prior to buying, customers evaluate two things:

• the price of the product or service

       versus

• their perception of its value.

If their perception of value equates to the price you are asking for, they will be ready to buy.

The difficulty here is in the words, ‘their perception of value’. How do you manage value when it is in the eyes of the consumer?

Take a branded shoe such as Nike. One person may buy the shoe because it helps them run, a second may buy because it worn by top athletes, while a third may buy just to be seen wearing the brand.

Perception of Value

Typically, marketers and managers focus on price as the quick and easy solution to boost sales and profits. However, studies indicate that when a customer evaluates a product to purchase, perceived value is a significant, if not the most critical factor in the purchase process.

Understanding the value of a product to a customer is complicated due to its psychological and highly personal nature. Fortunately, there are functional and emotional elements that are associated with a product’s value.

Anticipating customer value, must be a foundation for successful marketing. It’s important to understand which factors shape your product's fundamental value to position it successfully in front of the competition.

 Those factors can be grouped into four different categories: functional, emotional, life-changing, and social impact. These four categories then divide into 30 universal building blocks used to define value.

Understanding these building blocks of value gives companies an opportunity to improve their existing products and services or create new ones.

The Factors Influencing Value

To identify the customers perception of value in products and services, researchers Eric Almquist, John Senior and Nicolas Bloch (Bain and Co) undertook research which resulted in a model known as the consumer value pyramid.

Their research concluded there are 30 elemental “building blocks” of value that drive the customer’s buying decision process. These building blocks are typically shown in a pyramid. At the bottom are the values associated with the basic physical needs. As you go the higher up the pyramid, the more complex the elements became until you reach the self-transcendence level.

The more elements of value you deliver, the more likely that your product or service will have success in the market. However, the order in the pyramid is important. Firstly, you need a strong foundation with at least some functional factors. Then you should aim to build higher level factors. The higher the level the greater the predicted emotional and psychological connection with your customer.

The right mix of value factors can lead to stronger customer loyalty. However, your product doesn’t have to meet all factors to win over the customer.

Functional Product Values: Level 1

While all four value categories are important, having functional factors is a necessity because they provide the foundation of practical and useful value.

Saves Time: achieves something faster.

Simplifies: makes some action or process easier.

Makes Money: has monetary benefits.

Reduces Risk: shown to be the safest choice.

Organises: helps you to shape something complex.

Integrates: it’s able to mix different aspects of a process.

Connects: connects with other people.

Reduces Effort: helps you to get things done with less effort.

Avoid Hassles: reduces or avoids a problem.

Cost Reduction: saves money

Quality: provides high-quality goods or services.

Variety: provides a wide variation range.

Sensory Appeal: appeals to one or several senses.

Informs: provides reliable and trusted information.

 Emotional Product Values: Level 2

You’ll need emotional value factors to connect with your customer and give them a certain feeling that makes them comfortable to purchase your product.

Reduces Anxiety: helps you to feel more secure and less worried.

Rewards Me: provided benefits and special offers.

Nostalgia: reminds you of something positive in the past.

Design: has a visually appealing form.

Badge Value: represents a certain aspiration or status.

Wellness: improves physical or mental state.

Therapeutic Value: provides restorative well-being.

Fun: offers some type of entertainment.

Attractiveness: helps you to feel more appealing.

Provides Access: gives you access to exclusive and valuable items.

Life Changing Product Values: Level 3

When your product offers life-changing value elements, it means that you promise your customers a personal transformation of some kind.

Self-Actualization: provides a sense of personal accomplishment.

Provides Hope: gives you a sense of optimism about something.

Motivation: help you to achieve a certain goal.

Heirloom: it seems like an investment for a future generation.

Affiliation: gives you access to a community.

Social Impact Product Values: Level 4

At the top of the pyramid, you are delivering value that does not only affect your customer but some larger group to which your customer has an affinity.

Self-Transcendence: helps other people.

The consumer value pyramid is likened to Maslow’s hierarchy of needs, in that, in order to deliver the factors of value at the top of the pyramid, a product or service also needs to provide the factors of value at the bottom of the pyramid.

For instance, a beautiful, heirloom piece of jewellery would have reduced appeal if it's mounting was structurally weak and unable to be worn and displayed.

The importance and ranking ascribed to specific factors of value will vary depending on the market demographic.

For instance, factors such as self-actualization and self-transcendence might not mean much to a struggling farmer in the midst of a multi-year drought. Alternatively, factors like makes money, reduces cost, and reduces risk are very important.

PUTTING THE FACTORS TO WORK

Businesses need to be able to take advantage of the factors of value to attract customers, solve business challenges and grow revenue.

Here is a suggested way to proceed:

• Business-wide value - identify the factors that form the core value of your business.
• Product & service value - identify value factors to the products and services.
• Assess the value factors in your competitors’ business, products & services.
• Research the value factors specific to your industry.
• Research your customers’ value factors. Conduct face-to-face interviews with some of your current customers.

How does your business and it’s products & services rate compared to:

• Your competitors.
• The industry.
• Your customers.

List and rate the value factors that by addition or improvement will move your business ahead of the competition and closer to your customer.

Prepare your action plan and get started.