This is Your Brain on Value

December 15, 2019 in  Strategy and Financial Management
Avatar by Shawn Davis

Value-Thinking

Think in terms of value requires looking at the world in a different way. One must first recognize the very important fact that value is first and foremost perceived.

The emotive qualities of trading money for something (anything) ultimately boil down to how we feel about the purchase. Sure, we evaluate the qualities of the thing we're going to buy, but in the end some specific emotion is required to make a decision.

Image
Ah, the Brain

Negative emotions (such as anger, fear, or uncertainty) will cause a delay or a decline in purchasing. Positive emotions (such as excitement or anticipation) will speed the purchasing process along.

Influencing the emotion of the buying decision is the province of marketing. Today, marketing tactics are often underhanded at best, and may be downright creepy. That's unfortunate, because those of us that want an "honest" decision find it more difficult to reach people that would benefit from what we have to offer.

Nevertheless, thinking it terms of value is best for our clients and customers, and the true purpose of marketing is to match those clients and customers that need the specific value we bring to the table.

This means we must put ourselves in the shoes of the purchaser. We need to create value for them and they must be able to perceive that value as well as have positive feelings toward the offer.

In creating value, we aren't looking at the world from our perspective, but from the perspective of the buyer -- and that can be a difficult thing to do.

The Four Factors

In every product or service there are four factors that influence value. These may be summarized as:

  1. Cost
  2. Quality
  3. Service (or Support)
  4. Marketing

Of these four, only three have any value to the buyer.

The value produced must exceed the cost. Quality has a great deal of impact on the value, while service (or support) augments the quality (hopefully) in a positive manner.

The provider may view the four factors as a set of dials. Few companies can maximize all of the dials, and in fact it is not always in the best interest of the company to do so. Excelling at quality whilst reducing cost may in fact bankrupt the company. Excessively investing in marketing without a decent product or service to sell may very well do the same.

The dials are not necessarily balanced, nor do they need to be. Expectations are key. Again, it's looking at the world from the buyer's perspective. No on expects much from a low-budget B movie. The quality is expected to be low, and the cost is adjusted accordingly. Packaging, positioning, and marketing a B movie as a big-budget blockbuster is going to leave the audience disappointed when the cost is high and the quality is low.

"Expectations are key. [finding value] is looking at the world from the buyer's perspective."

Apple is great at marketing, service, and quality -- but the cost is much higher compared to other providers. It turns out some people are willing to pay for the quality and service for computers and accessories that "just work". This allows Apple to sell its products at a much higher profit margin.

Microsoft is also good at marketing, but some people find the products frustrating to use (low quality or perceived low quality) and support can be hard to navigate. The cost, however, is more in within reach of many businesses and consumers.

It's The Outcome That's Important

This is a common headline in our writing, because it can't be stressed enough. In this case it applies to the cost, quality, and service equation that creates value for the buyer. Of course, the equation must factor in profit for the company.

When I talk to business owners -- especially new business owners -- I often find the somewhat philanthropic desire to provide quality at low cost. Philanthropy, however, is for people with a lot of money, and new business owners are rarely in this situation.

I once had a conversation with a business owner that provided property management services. Her fees were extremely low -- too low. She was providing services to both businesses and consumers, and charging to little for both. Not even close to market rates. This was partly in an effort to "be fair" but also to just make sales -- any sales.

This particular business owner went out of business. I would like to say it was because my advice went unheeded, which was true. The cost was low, the quality and service were good. Marketing was meh. Ultimately the economics of the providing the service didn't allow the company to survive and all the people that were treated "fairly" would have to find a new provider that charged higher prices.

This is value thinking. Balancing the four factors, creating sustainable value.



About the Author
Avatar For 20 years, Shawn has lived, breathed, and sometimes coughed up information technology, and is a master of both planning and process. He's also supervised the production of control boards for missiles and torpedoes, worked as a private investigator, managed a textbook warehouse, and lived in South America. His varied experience and wider view of the world brings a decidedly different perspective to problem solving, and his mission is to both encourage and assist individuals and organizations in rising to the challenges of our day.