The 30 Elements of Customer Value: A Hierarchy (2023)

When customers rate a product.the service,They weigh their perceived value against the selling price. Marketers have typically spent much of their time and energy managing the pricing side of this equation, as a price increase can boost profits instantly. But that's the easy part: pricing is usually about managing a relatively small set of numbers, and pricing analysis and tactics are sophisticated.

However, what consumers truly value can be hard to pin down and psychologically complicated. How can leadership teams actively manage value or find ways to deliver more, be it functional (time savings, cost reduction) or emotional (anxiety reduction, entertainment)? Discrete choice analysis, which simulates demand for different combinations of product features, prices, and other components, and similar research techniques are powerful and useful tools, but they are designed to test consumer responses to preconceived value concepts. Assess To propose new concepts, you need to anticipate what else people might find valuable.

The level and nature of the value of a particular good or service is of course always in the eye of the beholder. However, there are universal building blocks of value that provide companies with opportunities to improve their performance in current markets or to enter new ones. A rigorous consumer value model allows a company to develop new combinations of value that its products and services could offer. Our analysis shows that the right combinations result in increased customer loyalty, increased consumer willingness to try a particular brand, and sustainable sales growth.

We've identified 30 "valuables," fundamental attributes in their most essential and discrete form. These elements fall into four categories: functional, emotional, life-changing, and social impact. Some elements are more interior-oriented and primarily address the personal needs of consumers. For example, the life-changing itemMotivationIt's at the heart of Fitbit's fitness tracking products. Others are outward-facing, helping customers interact with or navigate the outside world. The functional elementOrganisationis central to Intuit's The Container Store and TurboTax as both help consumers navigate the complexities of their world.

In our research, we do not accept a consumer's claim that a particular product attribute is important; Instead, we examine what underlies this claim. For example, if someone says their bench is "comfortable," its value is derived from a combination of the functional elementsTo save time, avoid discomfort, simplified,jreduces the effort.And when the owner of a $10,000 Leica talks about the quality of the product and the images they take, that's a fundamental, life-changing elementself-realization,proud to own a camera that famous photographers have been using for a century.

Three decades of consumer research and corporate client observation experience has led us to identify these 30 key attributes, which we have derived from dozens of quantitative and qualitative client studies. Many of the studies involved the well-known “stepped” interview technique, which examines consumers' initially stated preferences to find out what motivates them.

Our model has its conceptual roots in psychologist Abraham Maslow's "Hierarchy of Needs," first published in 1943. Maslow, then a faculty member at Brooklyn College, argued that human actions arise from an innate desire to satisfy needs ranging from the most basic (safety, warmth, food, rest) to the complex (self-esteem, altruism). Almost every marketer today is familiar with Maslow's hierarchy. The value elements approach extends his ideas by placing the human being as a consumer at the center and describing his behavior in relation to products and services.

It may be useful to briefly compare Maslow's thinking with our model. Marketers have seen his hierarchy organized in a pyramid (although it was later interpreters, not Maslow himself, who put his theory in this way). At the bottom of the pyramid are the physiological and safety needs, and at the top are self-actualization and self-transcendence. The common assumption has been that people cannot satisfy the above needs until they have satisfied the ones below. Maslow himself took a more nuanced view, recognizing that there can be numerous compliance patterns. For example, climbers achieve self-actualization in ropeless ascents of thousands of feet while ignoring basic safety considerations.

Likewise, the elements of the pyramid of values ​​are a practical rather than theoretically perfect heuristic model, in which the most powerful forms of value live at the top. In order to meet these high-level elements, a company must provide at least some of the functional elements required for a specific product category. But today there are many combinations of elements in successful products and services.

Most of these elements have been around for centuries and probably longer, although their manifestations have changed over time.associateit was first provided by messengers carrying messages on foot. Then came the Pony Express, the telegraph, the pneumatic tube, the telephone, the internet, email, Instagram, Twitter and other social media.

Article relevancy varies by industry, culture, and demographics. For example,NostalgiaÖintegrmay mean little to subsistence farmers in developing countries, whilereduces the riskjmakes moneythey are vital to her. Also throughout historyself-realizationit was unattainable for most consumers focused on survival (even if they found fulfillment in spiritual or mundane pursuits). But anything that saved time, reduced effort, or lowered costs was appreciated.

rising income

To test whether value elements could be linked to business performance, specifically a company's customer relationships and revenue growth, we worked with Research Now (an online data collection and sampling company) to survey more than 10,000 US consumers on their Perception of nearly 50 US-based companies to be surveyed: Each respondent rated a company from which they had purchased a product or service in the previous six months for each point on a scale from 0 to 10. When companies have major brand areas such as insurance companies or banks, we conducted separate interviews focused on those areas. We then looked at the relationships between these rankings, each company's Net Promoter Score (NPS), a widely used metric of customer loyalty and retention, and the company's recent revenue growth.

Our first hypothesis was that companies that score well on multiple value elements have more loyal customers than the others. The survey confirmed it. Companies with high scores (defined as 8 or higher) on four or more points from at least 50% of respondents, including Apple, Samsung, USAA, TOMS, and Amazon, had, on average, three times the NPS of companies with only one high score and 20- times as high as the NPS of companies without. More is clearly better, although trying to fit all 30 elements into one product or service is obviously unrealistic. Even a consumer powerhouse like Apple, one of the best we've studied, scored highly on just 11 of the 30. Businesses need to choose their elements strategically, as we will show.

Our second hypothesis was that companies that perform well across multiple items would increase sales faster than others. In fact, strong performance across multiple items is closely correlated with higher and sustained revenue growth. Recently, companies that scored high on four or more have seen revenue growth four times faster than companies with only a high score. Successful companies understand how they stack up against the competition and have methodically selected new elements to deliver over time (although most of them have not used our specific framework).

Below, we examine whether value elements could shed light on the amazing growth in market share for digital upscale retailers. This has also been confirmed empirically. Amazon, for example, scored highly on eight mostly functional items, demonstrating the strength of value creation for a core offering. You have selected product properties that are very similar to those of our model. For example, when Amazon Prime was founded in 2005, the company initially focused on the offerreduces costsjto save timeProviding unlimited two-day shipping for a flat annual fee of $79. He then expanded Prime to include streaming media (granted accessjfun/entertainment), unlimited photo storage on Amazon servers (reduces the risk) and other functions. Each new item attracted a large group of consumers and helped elevate Amazon services far beyond the status of commodities. Prime has penetrated nearly 40% of the US retail market, and Amazon has become a behemoth of consumer value. This allowed the company to increase Prime's annual fee to $99 in 2015, which is a huge price increase by any standard.

value pattern

To help companies manage the value side of the equation more directly, we wanted to understandWasThe elements translate into successful business performance. Are some of them more important than others? Do companies need to compete at or near the top of the pyramid to be successful? Or can they be successful by only excelling in functional elements? What value do consumers see in digital versus omnichannel companies? We use our data to identify three value creation patterns.

Some elements are more important than others.

In all of the industries we examine, we perceivequalityaffects the client's defenses more than any other element. Products and services must meet a certain minimum level, and no other point can compensate for falling significantly short of this level.

After the quality, the critical elements depend on the industry. For food and drinkssun trip,Unsurprisingly, it's a close second. In private customer businessgranted accessjheirloom(a good investment for future generations) are the elements that matter; As a matter of fact,heirloomin financial services in general it is crucial because of the link between money and inheritance. The broad appeal of smartphones stems from how they offer several elements, includingreduces effort, saves time, connects, integrates, variety, fun/entertainment, creates access,jOrganisationThe manufacturers of these products - Apple, Samsung and LG - achieved some of the highest scores of any company surveyed.

Consumers perceive that digital businesses offer more value.

Well-designed online stores make many interactions with consumers easier and more convenient. Therefore, digital companies in particular stand outto save timejavoid complaints.Zappos, for example, scored twice as many as competitors in traditional dress on these two and a few other elements. Overall, it scored highly on eight items, well ahead of traditional retailers. Netflix outperformed traditional TV service providers with scores three times higherreduced cost, therapeutic value,jNostalgia.Netflix also scores higher than other media providers indiversity, showing how effective it was at convincing customers that it was offering more titles without any factual evidence.

Physical stores can still earn on specific items.

Omnichannel retailers win through some emotional and life-changing elements. For example, they score twice as many points as online retailersbadge value, attractiveness,jAffiliation and Membership.Consumers who get help from sellers rate those retailers much better; In fact, the emotional elements in stores have probably helped some retailers stay in business.

Additionally, companies that score well on emotional elements tend to have higher NPS on average than companies that only score high on functional elements. This finding is consistent with previous Bain analysis showing that digital technologies have transformed brick-and-mortar businesses, rather than destroying them. The merging of digital and physical channels is proving to be stronger than any of them. That partly explains why E*TRADE invested in brick-and-mortar stores and why retailers like Warby Parker and Bonobos opened brick-and-mortar stores. (Watch"Digital-Physical Mashups"by Darrell K. Rigby, HBR, September 2014.) These patterns show that there are many ways to be successful by delivering different types of value. Amazon has expanded functional excellence to a mass market. Apple is characterized by 11 elements of the pyramid, some of which are very high, which allows the company to charge premium prices. TOMS is characterized by four elements, and it is one of themself-transcendence,because for every pair a customer buys, the company gives away a pair of shoes to those in need. This attracts a select group of people who care about charitable donations.

Let the elements work

These patterns are intriguing in their own right, and shed light on how some companies have chosen to navigate the turmoil in their industries. Ultimately, however, the articles must prove useful in solving business challenges, especially increasing sales. Businesses can improve the elements that make up their core value, which helps them differentiate from the competition and better serve their customers' needs. You can also add meaningful elements to expand your value proposition without overhauling your products or services.

Companies have started using our method in various practical ways and instilling a “value-seeking” mentality in their employees. Although many successful entrepreneurs have instinctively found ways to create value as part of their innovation process, this becomes more difficult as companies grow. Executives at most large companies spend less time with customers and innovation often slows down. The items can help them to recognize a new value.

Some companies have refined their product designs to offer more elements. Vanguard, for example, has added a low-cost, partially automated advisory platform to its core investment services to better inform its clients and, in many cases, reduce risk. A chainsaw manufacturer, feeling undifferentiated, used the value elements to identify specific opportunities to make future products distinctive. He focused onquality(defined as results of using its products),To save time,jreduces costsThese three elements had the greatest impact on customer satisfaction and loyalty, and the company was able to use them to build a competitive advantage.

Other companies have used the items to determine where customers perceive strengths and weaknesses. They start by understanding which items are most important to their industry and how they stack up against the competition. If a company is falling behind on critical elements, it should improve them before attempting to add new ones. A large consumer bank found that while it did relatively wellavoid complaintsjTo save time,didn't do wellQuality.The bank thoroughly investigated why its quality scores were low and launched initiatives to strengthen anti-fraud measures and improve the mobile app experience.

The broader business potential of the value element model today lies in the development of new types of value to be provided. Supplements make the most sense when the organization can deliver them using its current capabilities and a reasonable investment, and when the items fit the company's brand.

Sometimes choosing an add-on is pretty easy: Acronis and other software vendors have added cloud storage and backup services to support their brand promisereduces the riskfor computer users. Another key element in cloud backup isprovides access,because users can access their files from any internet-connected computer, tablet or smartphone.

However, it is not always so obvious which elements need to be added. A financial services company realized that if it could attract more consumers to its retail banking business, it could cross-sell insurance, investment advice, and other products. But how could I do that? The company arrived at the best answer through three mostly qualitative research stages, followed by a highly quantitative fourth stage.

structured listening.

In partnership with Bain, the company interviewed current and potential customers across the United States, individually and in groups. The goal was to understand consumers' priorities for a checking account, their frustrations, their obligations, and their reasons for using multiple institutions for banking services.

brainstorming sessions.

We then use the elements to examine where increases in value might go to consumers. Bain's survey data had identified elements that tend to strengthen customer advocacy in consumer banking, includingprovides access, Heirloom,jreduces anxiety.These insights, combined with consumer research, led to in-depth ideation sessions with a project team made up of people from all of the bank's customer-facing departments, not just marketers.

The sessions explored what elements could be used to form the core of a new offering. For example,granted accessjassociateIt was attractive because the bank could provide access to mutual funds or connect consumers with financial planners. In the end, however, the team decided that neither was feasible in this deal, mainly for cost reasons. Instead, he developed 12 current account concepts that were based on itreduces costs makes moneyjreduces anxiety. Reduce costsFeatured low prices whilereduces anxietyHe emphasized automatic saving.Reduces anxietyThis was especially important given that most of the target clients were living paycheck to paycheck and struggling to save money.

Customer-oriented design of prototypical concepts.

Each concept approved by the project team included a different combination of product features, tariffs, and levels of customer service. Many of these new concepts could be delivered via an improved smartphone app that would increase customer loyalty with the bank. Almost all target consumers used smartphones for financial services (consistent with our previous observations on the many value elements these devices offer).

The financial services company then conducted more one-on-one meetings with consumers and received a quick response that allowed them to pare the 12 prototypes down to four concepts to increase value. Then, based on the feedback, he refined them in the fourth, quantitative stage:

Strict Choice Modeling.

After developing the four prototypes, the project team tested them with thousands of customers using discrete choice analysis, which requires people to make a set of explicit decisions when presented with a set of product options. Researchers began by compiling a detailed list of attributes for each prototype: ATM fees, overdraft fees, credit control, customer service hours, etc. Respondents were presented with multiple sets of checking accounts that differed in these attributes, and asked to select the prototype from each set choose which one you prefer. This process was repeated several times while changing attributes according to an experimental design until the team found the winning combination of attributes.

Two clear finalists emerged that the bank recently launched. It will use customer demographics and demand growth to determine the ultimate winner.

starting

Value elements work best when a company's leaders recognize them as a growth opportunity and make value a priority. It should be at least as important as cost management, pricing and customer retention. Businesses can discipline themselves to add value in a few key areas:

Development of a new product.

Our model can inspire ideas for new products and elements that can be added to existing products. For example, managers might ask: Can we connect with consumers in new ways? Can our customers benefit from integration with other software applications? Can we add therapeutic value to our service?

Prices.

Managers often see pricing as one of the key levers for managing demand, because when demand remains constant, higher prices add directly to profit. But higher prices also change the consumer value equation, so any discussion of rising prices must consider adding value elements. Consider how Amazon's sensible increases in value have helped justify higher prices over time.

customer segmentation.

Most companies have a formal method of segmenting their customers into demographic or behavioral groups, which provides an opportunity to analyze what each of those groups values ​​and then develop products and services that deliver those elements.

Whenever an opportunity for value creation arises, managers should start with a survey of current customers and potential leads to find out where the company stands in relation to the items it supplies (or does not supply). The survey should include both the product and the brand, since looking at both can lead to different assessments. For example, the product itself can offer great value while customers find it difficult to get service or support.

Value elements also have an organizational dimension: someone in the company has to be chosen to explicitly think about, manage and monitor values. One pay-TV executive who lamented Netflix's success told us, "I have a lot of people working on product features and service improvements, but I don't have anyone who really thinks holistically about Netflix's consumer value elements."

The notion of value remains rooted in psychology, but the elements of value can make it much less amorphous and mysterious. Abraham Maslow emphasized the courageous, confident and positive potential of psychology. Elements can help managers add creative value to their brands, products and services, thereby gaining an advantage over consumers, the true agents of value.

A version of this article appeared inSeptember 2016number (pp. 46–53) ofHarvard Business Review.