The Elements of Value
Value lies in the eye of the beholder. But as two Bain & Company experts indicate, universal building blocks of value do exist.
The amount of value in a particular product or service will always lie in the eye of the beholder. Yet universal building blocks of value do exist.
Figuring out what consumers truly value is no easy feat. Describe how your work on ‘the elements of value’ began.
Eric Almquist: A few years ago, after doing hundreds of consumer studies for our clients over three decades, we realized that we had some very powerful intel about what people value. Initially, we used our research to identify 24 elements of value in the consumer arena — but we suspected there were more. So, in 2015, we did some new qualitative research, talking to consumers directly about why they purchased a particular product.
We really probed people, to get down to the fundamentals. If someone said, ‘I use Bank X because it’s convenient’, we would ask, ‘What does convenience mean to you?’ We did this repeatedly to get down to the most granular elements of value. In the end, we identified 30 hierarchical elements of value for consumers, and last year, we set out to do the same for the business-to-business (B2B) realm.
Our basic theory is that ‘value’ in the eyes of consumers and B2B customers is not monolithic: It is actually composed of different types of value, and the right combination of elements can pay off in customer loyalty, greater willingness to try products and sustained growth.
Describe how your framework relates to Abraham Maslow’s Hierarchy of Needs.
EA: Once we had our 30 elements of value for consumers, we knew that we had to organize them somehow, so we looked around at existing frameworks for inspiration. We realized that an analogy could be made with Abraham Maslow’s Hierarchy of Needs. This well-known ‘pyramid of human needs’ starts out with the most basic physiological and safety needs; once those are met, the user moves on to focus on fulfilling psychological needs like belonging, love and feelings of accomplishment. At the very top of the pyramid are self-actualization needs, such as achieving one’s full potential.
We thought about our 30 elements of value in the context of Maslow and organized them into four hierarchical categories. The elements of value for consumers range from functional to emotional to life-changing to social impact. To give you some concrete examples, the life-changing element ‘motivation’ is at the core of Fitbit’s exercise-tracking products; the functional element ‘organizes’ is central to the success of The Container Store and Intuit’s Turbotax, both of which help people deal with complexity; and the owner of a Leica camera can enjoy the
life-changing element of ‘self-actualization’, as a result of the pride that comes with owning a camera used by many famous photographers.
Smartphones are really just bundles of elements of value: You can contact your friends on your device; there are tools to help you organize your life, like calendars; you have access to your money; you have entertainment, whether it’s video or audio. One of the reasons smartphones have been so successful is that they deliver on multiple elements of value — including functional, emotional and life-changing elements — in a way that is unprecedented in business history. With the iphone and ipad, for instance, Apple delivers on 11 of the 30 elements of value. It’s quite astonishing how they have achieved that. People will give you their money, time and attention in exchange for various types of value.
You have said that a key challenge for today’s leaders is to
examine their offerings and come up with new ‘combinations
of value’. Please explain.
EA: There’s a lot of talk these days about Big Data and the use of advanced analytics to uncover value. Data does play a role in this, but at the heart of every successful product or service is the concept of value that one is exchanging with the consumer. I would strongly encourage companies to spend at least as much time thinking about what kind of value they can add as they do thinking about data analytics.
How did you quantify value in your research?
EA: We surveyed more than 10,000 U.S. consumers about their perceptions of nearly 50 U.s.-based companies. Each respondent scored one company — from which he or she had bought a product or service during the previous six months — on each of the 30 elements, using a zero-to-10 scale. Then we looked at the relationships among these rankings alongside each company’s Net Promoter Score (NPS) and recent revenue growth.
Our hypothesis was that companies that performed well on multiple elements of value would have more loyal customers than the others, and the survey confirmed that. Companies with high scores (defined as an 8 or above) on four or more elements of value from at least 50 per cent of respondents — which included Apple, Samsung, USAA, TOMS and Amazon — had, on average, three times the NPS of those with just one high score, and 20 times the NPS of companies with none. Offering more elements of value is clearly better — although it would be unrealistic to try to inject all 30 elements into a single product or service.
The right combination of elements can pay off in stronger customer loyalty and sustained growth.
Jamie Cleghorn: We took a very similar approach on the B2B side. We surveyed corporate customers of products or services from companies like Cisco and Amazon Web Services, and asked them to rate their purchasing experience on the initial 30 elements of value. Next, we looked at a couple of things: Were they clearing the threshold that we had set empirically, so that we could declare that they were actually delivering on that attribute? To come up with the thresholds, we looked at correlations between growth, the elements of value and Net Promoter Score.
Once we had the scores, we worked with our clients to explore how to close ‘value gaps’ with their competitors. Were there new forms of value that they could be delivering that are adjacent to where they are playing today? And were there particular elements of value that they should really double-down on, to increase revenue growth? Whether you are coming at this from the consumer side or the B2B side, these are fundamental questions for any organization.
What are the key differences between the consumer-focused and B2B elements of value?
JC: They are definitely more similar than they are different. Both offer a method for decoding the behavioural economics behind a purchasing decision. However, the environment in which they operate is very different. First of all, with B2B, the ‘table stakes’ are much higher, because people are acting as agents on behalf of their organization, and the product or service must perform in a business setting. B2B buyers are in some ways implicitly risking their career with every purchase they make, so there’s more of a fear factor there. There is also more purchase complexity. You can have product issues, service issues, supply chain issues, etc.
The number of stakeholders involved in B2B decisions who have an active voice is a lot higher, as well. You can have
everyone from a line-of-business operator, to a procurement manager, to a senior executive, to a frontline individual contributor all having a share of voice in the decision. It’s a much more complex environment.
Talk a bit about the ‘table stakes’ required just to compete in the B2B realm today.
JC: We have identified four things that are binary — i.e. ‘must haves’ — at the table stakes level. First, the product must deliver on a specification. Most B2B purchases involve a ‘spec’ that the client is aiming to achieve, and this is clearly spelled out. Then there is the basic question of price: Is the product within a price range that is realistic? Third, does it meet with all the regulatory markers that a corporate purchaser must be compliant with? And finally, is it ethical? Am I transacting with a company that I’m willing to do business with on an ongoing basis?
EA: There are actually quite a few examples of companies failing at the table-stakes level. Enron is a great example. When it became clear that this was not an ethical company, they were