Value Is In The Eye Of The Beholder: You Must Understand It In Order To Create It
To create value, you must first understand its nature.
If I’m a squirrel I value nuts. I value them so much that when I have too many I find places to bury them (like flower pots on the Captain’s patio). If I’m a dog I value dog food and walks in the park and chasing squirrels. Value is how we decide what to eat and who to love and where to live and what profession to pursue; it’s a very old emotion. It’s the reason we crossed the oceans in wooden ships and built cities from stone. It’s why we have indoor plumbing and cell phone towers. Value is a fundamental force: a complex interaction between love and hate, past and future, rational need and irrational desire.
So what is the nature of value?
- Value is emotional. It arises from aesthetic appreciation and jealousy and happiness and anger — our emotions both create and shape what we value.
- Value is also cognitive. What we understand — both what we know and what we don’t know — can increase or decrease the value we associate with things.
- Value is a product of our past experiences and future expectations. It is tied to hope and regret; to pleasant memories and future fears.
- As a result of all the above, value is deeply personal. No two people share exactly the same values. Even when we largely agree, there are shades of difference based on our unique experiences and feelings.
- Value is entirely psychological. Without a mind, there can be no sense of value. Even though value may be something so fundamental that we share it with dogs and squirrels, it is not something we share with rocks or fire hydrants. Your product is never enough by itself — it does not have value unless someone is aware of it.
- There’s no such thing as intrinsic value; all value is perceived. I may love the taste and smell of apples. I may appreciate their nutritional value and how easy they are to eat. I may be willing to pay upwards of $3 a pound for the very best organic varieties. But to someone that’s highly allergic to apples, they are worth nothing — they have no value.
- Value is not constant. It can be created in an instant and evaporate just as quickly. Let's say I purchase a large bag of high-quality apples. That evening I turn on the news and hear that people have been getting seriously ill from a new pesticide that was sprayed on the apples I just bought. Earlier in the day I valued them at $3 per pound, now they are worthless.
- Everyone has different values. A baker buys apples to make pies. A mom buys apples to give her kids healthy snacks. A stable owner buys apples to treat her horses. People who value the same things do so for different reasons.
Psychological Alchemy: The Tools You Need To Create Value
Since all value is psychological, only psychological tools create value in the mind. There are three tools in our tool chest: knowledge (from information and other forms of content), emotion (created by design and branding) and experiences, which are a way we can combine the other two tools into something that may be greater than the sum of its parts.
CREATE COGNITIVE VALUE BY PROVIDING KNOWLEDGE
Knowledge is the left brain part of the value equation: practical, rational and information-based. For many customers, an explanation of the details will make the sale. Tech specs, nutritional information, warranties, miles per gallon — all these bits of information can help to create value.
If you have a great product or service to offer, one of the best ways to create value for it is just to describe it. Apple offers a wealth of information about its products — both general overviews for the average consumer and detailed specs for the more technically inclined. A restaurant may provide waiters with all kinds of information on their new menu items to allow them to answer questions. Central Market hires "foodies" to wander the aisles and answer questions on every imaginable product-related topic. For some customers, these pieces of information will create enough value to make the sale.
Cognitive value can also be created through teaching. When a dentist builds a website that provides a detailed explanation of how cavities develop or a garden center publishes guides to water conservation, they provide information that creates value. It demonstrates that a company cares for its customers, which adds another element of value to the mental process.
CREATE EMOTIONAL VALUE BY INSPIRING FEELINGS
Design, aesthetics and branding create emotion. Emotional value is the difference between buying a practical SUV or a two-passenger sports car. It makes people buy $5,000 handbags and tattoo company logos on their skin. Emotions are the most significant aspect of the decision process for most purchases, and direct everything from what kind of ice cream we buy to what kind of house we choose. Emotional value is a powerful, powerful thing.
In many cases, we already have an emotional context for various products and services; entrepreneurs must take these feelings into account. I may hate getting my teeth cleaned or having my car serviced. A dentist or a mechanic may need to find ways to overcome these prejudices. In the same way, you may love shopping for expensive shoes or dining at fine restaurants, and a restauranteur or shoe retailer may be able to leverage these feelings into a strong brand. Business owners that invest new emotional value into a specific brand can turn reluctant customers into fans or transform individual sales into repeat business. We’ll always return to brands that make us feel strong emotions.
Many successful entrepreneurs create emotional value for their customers the same way hopeful lovers do — they make people feel special. Exceptional, personal customer service can add emotional value to a purchase and justify much higher prices. Nordstrom has built their brand around this idea. Special opportunities can do the same thing, from a VIP airport lounge to a members-only event at an art museum.
CREATE VALUE BY PROVIDING AN EXPERIENCE
A sale is a moment in time, but we don’t live in a moment — our minds merge memories and expectations with knowledge and emotion. It all combines into one big mental soup that we call a brand.
Experiences create knowledge and emotion simultaneously. When you have a cup of coffee at an intimate little cafe you learn about the product — how it tastes, how it’s served — while you experience feelings associated with the context the cafe provides. When you sit at the computer, frustrated by the complex interface of an online store that promises products but makes it impossible to buy them, you learn about the company and associate it with your feelings of anger. Every customer experience creates a perception of value. The better the experience, the more it's worth.
In order to create value, blank page entrepreneurs must alter the mind — it’s not enough to just create a product or service. So as you’re developing your offering you must also answer the question, “What do I want people to know? How do I want them to feel? What’s the value of this experience?”
Do You Want What I Want? Value Changes From Context to Context
While sailing through the Pacific ocean on a dark, cloudy night, your boat is caught in a sudden squall. As the ship slides up and down enormous waves you are tossed overboard, but you find a piece of driftwood to cling to. Once the storm passes you float aimlessly, caught between sleep and fear. When morning breaks you awake to find yourself lying on the shore of a small, uncharted island.
Suddenly you hear footsteps coming through the trees. Turning, you see a large band of people approaching.
“Hello! Welcome to Unnamed Island,” says a woman standing at the front of the crowd.
Spitting sand from your mouth you stammer, “Thank goodness I’m alive! I have been adrift all night; my boat was lost at sea. I am terribly thirsty. Do you have some water? May I have something to eat?”
“Of course,” replies the woman. “But in our culture we believe only in trade. No one receives anything without offering something of value in return.”
“I am only too happy to pay you.” Rummaging through your wallet, you pull out a twenty dollar bill. “I have some cash ... will $20 be enough?”
“I am so sorry,” she replies, a look of disappointment crossing her face. “We do not accept American currency.”
“Oh. Okay. I have credit cards — they are good at millions of locations all over the world.”
“Wonderful!” Says the leader.
You return to your wallet and pull out a MasterCard.
Once again, her look of disappointment returns. “I’m so sorry,” she says. “We only take American Express.”
At this moment, what would you trade for water? Most of the time, you probably don't even think about its value — you just walk to the nearest water fountain and drink. In our daily lives, water is cheap and easy to obtain. But if you're in an unfamiliar place and you haven't had water for 48 hours, you might be willing to trade much, much more. The context has changed, and the value you once had for a glass of water has increased dramatically.
In order to make a trade, two people must agree that two different things possess roughly equal measures of value at the same time and place. The invention of money has made this process much, much easier. But entrepreneurs still have to create a context in which their products and services have value. But since people are inconsistent, and the value they have for products can change quickly, how do you keep them interested? Using the skill of empathy to understand the emotional context of groups of customers can allow you to provide the right products and services at the right moment in time.
The first step is to examine the psychological dynamics of your customers. What allows them to find value in your products and services? It’s not your products and services that have value, it’s how they are perceived, and people who value the same things do so for different reasons. Successful entrepreneurs know how to tap into these psychological dynamics. They know how to adapt their offerings to meet different sets of needs.
CREATING DIFFERENT PERCEPTIONS OF VALUE FOR THE SAME PRODUCTS: CARLA’S CLEANING SERVICES
Carla opened a business to provide residential cleaning services. After many conversations with existing and potential clients, she realized that she could segment her customers into three groups based on their primary emotional needs.
- Some people want cleaning services because they simply don’t have time to do much cleaning on their own — they want somebody else to take care of that task. They want to feel free. They want to cross things off of their to-do lists without worrying about how they can fit cleaning into their hectic schedules. They want to hear, “I’m going to save you time. I’m lightening your load so you have the freedom to focus on more important things.”
- Some people need cleaning services who follow their instructions carefully. They have a lot of money and emotion invested in their homes and they want things cleaned in particular ways and with strict attention to detail. They want to feel trust. They want to hear, “Trust me with this. I promise to be very careful and give it my undivided attention. You don’t need to worry.”
- Some people need cleaning services because they are simply unable to do these tasks themselves. They may have time to clean, but they don't know how or don't feel like they do a good job. Or they may just hate to clean. Sometimes they suffer from chronic disorganization or feel unable to keep things clean by themselves. They want to feel relief. They want to hear, “I’ll take care of it. Don’t worry about it. You no longer need to feel stress about this aspect of your life.”
The services are basically the same, but the way these customers think — their emotional contexts — couldn’t be more different. Demographics — income level, age, race, religion, gender — had nothing to do with what Carla's customers need to feel, and marketing based on those factors couldn’t ensure that Carla’s marketing efforts would present the right emotional appeal to the right customer. Carla realized that, due to these three very different emotional needs, she would have to approach potential customers in three different ways using three different psychological contexts.
- For those with too little time, she created an advertising campaign featuring a harried-looking woman with a briefcase in one hand and a mop in the other. Above her head were the words “Drop the Mop!” in large, red letters. Underneath it read, “Is cleaning floors the best way for you to spend your time? A ten minute call can save you ten hours a week!” She began featuring this campaign at trade shows and networking events focused on female executives, and by advertising in local publications geared towards business people.
- A second promotion focused on those who need careful cleaning. It featured a Downton Abbey-style maid carefully dusting an ornate chandelier. Underneath it read “Caring for your home is as important as creating it.” She began promoting this campaign at auctions and trade shows for those who love antiques and high-end furnishings, and in publications focused on architecture and interior design.
- For those who feel overwhelmed, a third campaign featured an image of a very confused looking man surrounded by brushes, mops, brooms and hundreds of different bottles of cleaning products. The caption beneath read, “Confused? With all the options to choose from, it can be hard to know the right way to clean your home. Let us help.” To promote this campaign, Carla began working with local professional organizers — people whose clients have a hard time integrating cleanliness into their daily routines.
Each of these sets of customers valued different things. Carla was able to provide what they wanted only by recognizing the core psychological needs that create value in their minds, then altering her communications to meet those needs.
Do I Feel The Same Way You Do? Value Changes From Person To Person
A large pig pen sits in the middle of a few hundred acres of farmland. The ground inside the pen is about five inches deep in mud. Lying in the middle of the pen is a crisp, new $100 bill. Two women stand on one side of the pen, staring at the money. One is young woman who’s never been on a farm and hates getting dirty. She’s also afraid of large animals like pigs and cows. On the other side of the pen is the owner of the farm, a woman who has poured seven years of her life into raising pigs and loves being around them.
Which of these two women would be more likely to jump over the fence, walk to the center of the pen and pick up the $100 bill? Both women agree on the value of the money — both know it can be traded for $100 worth of products and services. But the desire for that particular bill is going to be far less for a woman who’s afraid of pigs and mud. For her, the perceived cost of walking across the pig pen is simply too high. The owner of the farm probably wouldn’t think twice about it.
Although both women value money, their experiences and feelings affect what they are willing to do to get it. Different people have different values for the same thing. Value changes from person to person.
This is true in a host of customer situations, and income is not the most critical factor. Some people are willing to spend a much higher percentage of their income on a particular type of product simply because they find it more valuable. Two people who each make $100K a year may feel very differently about cars. One may be willing to spend $75K on a new Mercedes while the other wouldn’t spend more than $20K and prefers to buy something used. It’s not the income that makes the decision, it’s the internal assessment of value.
As a blank page entrepreneur, it’s more important to understand a psychology than a demographic profile. If you have one set of customers that’s willing to pay more for a product you have an opportunity to invest in that group and develop a more devoted customer base.
CREATING VALUE FOR DIFFERENT SETS OF CUSTOMERS: BARNEY’S BEER BARN
Barney’s is the place for beer – every kind in every price range. A sizable portion of the business comes from mass-market beer drinkers; people who pick up a couple of six-packs of a nationally known brand about once a week. But the profit margins on mass-market brew are fairly thin, and competition from local convenience and grocery stores prevents a significant price increase.
However, that wasn’t true for the craft beers Barney carried. Customers for those products were willing to spend quite a bit more for a high-quality, well-crafted beer, and Barney found that they were more likely to become repeat customers if he added new offerings on a regular basis. When he spoke to them he found they were interested in the art of brewing and more willing to try seasonal product lines. His research indicated that they were also more likely to add impulse items to a purchase, like beer steins or high quality snacks.
Barney didn’t want to lose his mass market customers, but he wanted to reach out to the beer connoisseurs and offer them new experiences, adding value to the relationship they had with his store. How could he separate one from the other?
- Barney began segregating his customer base at the cash register. He designed vintage printed materials that contained “beer lore” — interesting beer-related trivia and history — and monthly calendars featuring a wide range of events. He instructed his cashiers to place them in the bags of those customers who bought craft beer.
- The calendars promoted seasonal beer tastings, chef-sponsored beer and food pairings, and tours to local craft breweries. These events were free or low-cost and designed to attract the attention of those who see beer as a hobby, not just something to drink on the weekend.
- Barney collected contact information from these customers at each event and began building a database of beer lovers that he could reach out to with new product offers.
- He also created a section of his website for this new community; a way to let these aficionados communicate with one another. Through their conversations he learned more about them and the kinds of products and services he could offer.
- But he also noticed something interesting about the "Joe six-packs" that bought mass-market beer. If a regular beer drinker watched the craft beer aficionados receive promotional items, they tended to ask what it was. The cashier was instructed to offer the regular beer drinker the same promotional material, and tell customers that they were having special promotions for the folks that preferred to drink craft beer. Sometimes, the mass-market customers would ask for a recommendation for a better brand; sometimes they would add one to their purchase.
- Barney decided to hang out by the cash register and talk to these customers. He found that they bought the same stuff out of habit — they just didn't know what kind of quality beer they would like, and didn't want to spend $9 on a six pack, only to find out that they hated it once they got home.
- Barney began having beer tastings on Friday nights. He handed out samples of the most popular brands, and found that sales of craft items increased significantly. By offering additional value to high-worth customers, Barney found he could encourage low-margin customers to increase their average purchase.
What Do I Value Right Now? Value Changes From Moment To Moment
A meteor falls to earth and obliterates a major city. Tons of dust and debris are blown into the atmosphere, creating a nuclear winter. Electrical grids go down, basic services are suspended, and what remains of humanity is quickly thrust into a kind of existence not seen in 3,000 years.
If this happens, how much money do you have? What are your credit cards worth? What can you trade for the cash in your wallet?
The plastic card in your wallet is linked to a numerical entry in a database housed on a server somewhere in cyberspace. That number gives you a certain amount of purchasing power. Today these things have value because the fundamental agreement we call money is in place. Tomorrow? Anything can happen. If the power goes out across our nation, the agreement you have with every store owner and credit card company may change fundamentally, and that plastic card may suddenly be worthless.
But we don't need a global disaster to change our perception of the value of a dollar. The way you felt about $20 when you were 10 years old is probably very different than the way you feel about $20 now. If you get a big raise or win the lottery, your perception of the value of money will change again.
Vegas casinos figured this out a long time ago and began opening malls filled with high-end stores. When someone wins big, his internal calculus for value — the way he perceives the worth of a dollar — changes for a short period of time. A lucky gambler walking away from a roulette wheel with a pocket full of cash might be more willing to treat herself than she would otherwise; she might run into an exclusive boutique and buy some brand name items that she wouldn’t have considered buying earlier the same day. This momentary change in value allows casino owners to recoup some of their lost money before it leaves the premises.
hose things that you value today may not be worth much tomorrow. The popularity of brands comes and goes. Trends emerge and fade. Some of the newest technologies may be completely obsolete in just a few years. As a blank page entrepreneur, you must create an agile offering — one that can change in value as needed. Each of us has a different value for the same product at different times. Value changes from moment to moment.
CARL’S CLOTHIERS (NEXT TO BOB’S BARBERSHOP)
Day after day Carl watched men walk in and out of Bob’s Barbershop. They came in looking scruffy and unkempt but came out looking polished and stylish. The new popularity of fades, pompadours and long, yet trimmed and styled beards created a surge in Bob’s barbering business. But Carl had not seen a similar uptick, in spite of the fact that he offered a wide range of jackets, ties, suspenders, handkerchiefs and other accessories that would look great with all these smooth hairstyles.
Carl decided to approach Bob with a proposition – could the two of them work together to create a more unique experience for these customers? After a man gets a beard trim and a fresh fade he looks and feels better than probably any other time during the week. Could they take advantage of the value men feel for their appearance after getting a fresh cut?
- Carl proposed that they enhance this feeling and offer something special to Bob’s customers — free photos. Men could take advantage of the money they had just spent on a haircut to get a nice photo or two when they were looking their best; a moment of time when they felt greater value for their appearance.
- Carl set up a “photo studio,” in his store with some inexpensive lighting and a vintage background. Men were told about the promotion while they were visiting Bob, and those who chose to could come over and sit for a couple of minutes to get their pictures taken.
- While they were in the store, Carl might suggest they put on a jacket, a vest or some suspenders for the photo, giving customers a chance to try out his merchandise and learn about his tailored suits and alterations.
- ]The photos were taken and, with permission, immediately emailed to the customer, which gave both businesses a chance to capture customer data for use in future promotions.
- Carl had the chance to familiarize potential customers with his products and services. Sometimes they bought the clothes they tried on.
- The value Carl created lasted longer than the haircut. Sometimes guys would ask Carl to schedule a photo shoot right after their next cut, usually to get photos to post on social media or to add to an online dating profile.
- Carl was able to use these moments to advise his new customers about how to look great for a date or other special occasion, becoming an advice-giving friend (or underpaid image consultant) to men who now had a clothier they could reach out to with questions.
- These new relationships were maintained with regular communications — emails and direct mail. Carl was able to maintain his top-of-the-mind position with these customers, thanks to every man's predictable need for a hair cut. They all remembered Carl and his willingness to offer additional value.