What is a cynic? A man who knows the price of everything and the value of nothing.
– Oscar Wilde (1854 – 1900) in Lady Windermere’s Fan (1892)
Value is the fundamental driver why people buy any product or service. However, value is also a conundrum for most organizations as it is inherently subjective. How and why we value something is dependent on multitudes of individual, group, situational and environmental factors. Value culminates through an interaction of cognitive, affective and behavioural elements. Due to this multifaceted nature, value is one of the regularly misused and misinterpreted concepts in both theory and practice.
Those rooted in the discipline of economics measure value as a ratio between functionality and utility. This utility driven approach to value is easily quantifiable and hence is the preferred position among many organizations. However, such a constrained view leads to a less than optimal offering for customers and more importantly limited earning potential for the organization involved. Customer satisfaction surveys regularly demonstrate that more than 80% customers do not engage in repeat purchase due to a less than optimal experience. The value of goods or services thus, is not inherent to the goods or services themselves. However, the value arises from the inherent needs and wants the customers have and the capacity of the goods or services in satisfying those needs and wants to an extent. The higher the satisficing, the greater the value. A purely economic utility perspective fails to deliver that.
This is particularly true for today’s digital driven marketplace wherein consumers have more choice, greater say, and immense opportunities and freedom to engage in consumption alternatives. Satisfaction and especially loyalty among today’s customers is at an extremely low point. Moreover, repeat purchase is key to survival for most organizations and the low levels of satisfaction and loyalty poses an existential threat.
Defining and developing a digital value strategy that captures the underlying determinants and sub-dimensions of value offers a solution. By doing so, organizations can develop and employ a customer engagement strategy that is holistic in nature. In the following, I offer a digital value framework that captures the constitute dimensions and sub-dimensions of value which in turn may help you build and/or strengthen your digital value strategy.
Dimensions of value Research by my lab and several others suggest that, in physical world and more so in the digital environment, customers derive value not just through economic utility but through their subjective social and personal experiences and knowledge. Hence, I have identified three particular dimensions of value namely, social, personal and functional value that drive customer engagement.
Figure 1: Digital value map
We humans have an innate need to belong and thus consumption for most product categories involve a social effect. For example, imagine that a customer is walking up a high street on a sunny day carrying two mid or large size paper bags in their hands. Being a hot summer day they decide to buy a cold drink. However, now they have a challenge on their hand. They can’t carry the cold drink and the two bags easily. However, they also realise that they can easily put all the contents of any one of the bags in the other bag and also fold that paper bag and safely put it within the other bag. Would they have any preference as to which bag will be folded and which bag they would carry? If one of the paper bags was of Gucci (a luxury brand) and the other one was Primark (a low cost, low price fashion clothes retailer) which one would they fold away? The answer depends on the societal value the brand conveys. The societal value is particularly driven by two motives namely display motive and the acquisition motive. The questions to a strategist remain thus: How is your brand fairing in the digital marketplace with regard to competition on both display and acquisition motives? Is your product or service brand easy to acquire and display and more importantly, in the social media driven consumption experiences, is your brand really helping customer satisfy their urge to derive social value? With the rise of millennials and their increasing purchasing power, these questions become paramount as research again and again demonstrates that their consumption is experience driven rather than utility driven.
The digital customers are not only looking for social gratification only. They are also highly interested in the self-enhancement motives that are reflected in their materialistic value and the pleasure they aim to obtain from the product and services they encounter. Customers who particularly derive personal value are looking for identification of the product with their internal self and in turn experience pleasure in interacting with and consuming the product. In this regard, in developing a digital value strategy managers must ask: how is my product or service offering intrinsic and extrinsic self-pleasure and self-identification that the customer desires? Are the company’s efforts geared towards offering enhanced personal value in comparison to competitors? Zappos with its generous shipping and returns policy coupled with an excellent customer service and the variety offers a personal value experience that most other shoe e-commerce companies are unable to replicate. In doing so, the company offers a peace of mind to the digital customer who can then focus on the intrinsic product experience.
The function value aspect is associated with the economic utility of the product or service. In this regard, the function value reflects what the product or service can ‘do’ for the customer, rather than what it ‘represents’ (social value) and how the customer ‘identifies’ with it (personal value). Functional value is also quite critical for the digital value strategy. Today’s digital customers in this regard are particularly looking for a unique functional experience and not just a me-too one. Research consistently suggests that uniqueness of a product, service, brand and/or an experience leads to a greater valuation in customer minds. Thus, a digital strategist needs to ask how uniqueness motives are embedded in the digital value creation. Furthermore, the interplay of price and quality is particularly stark in digital environment. It is easier than ever to identify and compare the prices of competing products online and while customers are becoming price conscious, research also demonstrates that most customers associate high prices with high quality. A digital strategist, thus, needs to carefully think about the interaction of the price and quality perceptions in customer minds rather than only price comparisons with competition.
In summary, only focusing on the economic utility will not bear fruit in developing a successful digital value strategy. A strategist will need to focus on the integrative social, personal and functional values that customer can derive from the product or service in developing, refining and managing their organization’s digital value strategy. So, the final question remains, what is your digital value strategy and how it satisfies social, personal and function values your customers desire?