VALUE IS SUBJECTIVE
Gift-giving is one of my favorite things in the world. I love to see people’s reactions when they open one of my gifts. I love the joy on their faces, the surprise, the excitement and the gratitude. Writing this out now makes me wonder if I actually enjoy giving presents because it makes people happy or because it makes me feel good. Both, I suppose. That’s the power of prosocial behaviors.
My point is, whenever I am buying a gift for a loved one, I have to weigh out the satisfaction we will both get from the present and the cost of making that purchase. If I think satisfaction will exceed the cost, then I deem the gift a worthwhile purchase.
When we say great value, most of us mean the difference between quality and price. But value isn’t the difference between quality and price; it is the difference between the satisfaction people get from a purchase and the cost of acquiring it.
There are several things to unpack here.
First, satisfaction is a feeling, and as such, value isn't an objective measure of quality. It is subjective.
Second, at the moment of the purchase, satisfaction lives in the future. We use memory or imagination to project ourselves in a future state of satisfaction. So value is a story we tell ourselves about our future selves.
Third, it doesn’t just cost us money to buy. It also costs us effort, both physical and mental-- the energy required to search, evaluate and buy. There’s also what economists call opportunity cost, which simply represents all the other things people could do with their attention and money if they were not spending it on us. And perhaps the biggest cost of all is emotional. It’s the uncertainty and the anxiety that comes with the fear of making the wrong decision.
What does this mean for you?
First, understand that customers can rarely define quality in absolute terms, therefore, our claims of superior quality often fall on deaf ears. Instead, customers usually rely on gut feeling, pattern recognition (signals like price or packaging) and social proof as reliable predictors.
Second, understand that lowering your prices or improving product quality isn’t the only way to increase value for customers. Anything that lowers their costs increases their overall value. So, yes, sometimes it might mean lowering our prices, though one could argue that discounts are more effective in increasing satisfaction than cheaper offers. But we could also increase value by offering more convenience, saving customers time or making the purchase hassle free. When we do, customers are often willing to pay more. Not because they understand that it costs you more to deliver the same product or service, but because it costs them less to acquire it.
Third, understand that value is also subjective because it is contextual. Water when you are thirsty at a baseball game in the middle of summer isn’t worth the same as water at the grocery store checkout line. Diamonds are expensive and valuable because of their cultural relevance. And value often implies comparison with other options. In fact, our perceived value often changes based on the options we compare them to.
Ultimately, more than quality, it’s the imagined state of future satisfaction that dictates the value. And if this is true, the role of a marketer isn’t to convince customers about quality but to tell better stories to help them close the empathy gap between their present and future (imagined) selves.