The job of marketers is to convince consumers to buy a product. Consumers make their decision on whether or not to buy a product by comparing its price against its value to them. To be successful, marketers must simply tilt the equation in their favor—they must convince consumers that the product is more valuable than what it costs.
For many years, marketers have focused on the “price” side of this equation. Economists and businesses have consistently turned to cutting costs and prices as the primary method for driving sales.
However, a new approach is emerging—an approach which focuses on the “value” side of the equation. By making a product more valuable to a consumer, businesses can increase sales without having to cut costs, and are able to better serve their customers in the process. Bain and Company kick-started this new perspective when they published the Elements of Value Pyramid in the Harvard Business Review. The Elements of Value Pyramid illustrates how the most successful marketing strategies concentrate on how consumers value a product. By figuring out what motivates consumers to buy, brands can boost sales and profits even without cutting prices.
The Elements of Value
The Elements of Value Pyramid is based off of psychologist Abraham Maslow’s hierarchy of needs, a heuristic model which ranks our intrinsic human needs. Similarly, the Elements of Value Pyramid ranks attributes that consumers value in a product to show what motivates them to buy. The most basic elements are located at the bottom of the Pyramid, and more complex elements are found toward the top of the model. Overall, the Pyramid shows that a product holds its worth in its ability to provide these elements of value to consumers. The Pyramid displays four categories of elements:
- Life changing
- Social impact
Functional attributes add value to our lives in basic ways, such as saving us time or saving us money. For example, Uber fulfills the “simplifies” element because it’s ridesharing services make transportation around cities uncomplicated.
Emotional attributes contribute to our emotional well-being. A product can hold emotional value if it makes us feel relaxed or rewarded. Think about Fitbit. Because it rewards badges to consumers who complete fitness challenges, it offers the emotional “badge value” element.
Life changing attributes are elements which can make a monumental difference in our lives, such as providing us friendship, major accomplishment, or the ability to pass something of value on to the next generation. Financial services, which fulfill the “heirloom” element, fall under this category because their services offer consumers the ability to pass wealth down to future generations.
Finally, at the top of the pyramid is the social impact category, which holds attributes that offer value not just to us, but to the rest of society. Products can hold this value if they make us feel that by purchasing it, we are serving not just ourselves, but the greater good. Tom’s famously offers this value to us: by promising to give a pair of shoes to someone in need for every pair we buy, their brand fulfills the “self-transcendence” element.
Proof the Pyramid is right
Researchers affirmed the Pyramid’s predictions. They hypothesized that brands whose products used more elements from the table would be more successful. This theory was tested by examining the correlation between the number of elements a brand used and the brand’s profits and consumer reviews. First, it was found that brands which used more of the elements in their product did make more sales and more profits. Apple incorporated the most elements in their products of all the brands tested, and it also had the highest profits. Brands tested which only used a few of the elements did not make many sales compared to the other companies in the study.
Furthermore, researchers found that consumers had more favorable opinions of the brands which used relatively more of the elements. This was concluded by looking at the Net Promoter Scores (NPS), which measure customer loyalty and advocacy, of the brands in the study. Those which had a higher NPS were those who incorporated more elements of value in their product.
All of this goes to show that the Elements of Value Pyramid correctly suggests that successful marketing strategies focus on adding value to a product in the eyes of a consumer, rather than simply slashing prices.
What this means
Four main pieces of advice can be extracted from the Elements of Value Pyramid:
- Focus on ways to add or improve elements
- Choose your elements strategically
- Quality is priority
- Choose from different categories of values
Focus on ways to add or improve elements
The most obvious advice to draw from the Elements of Value model is that profits and customer loyalty can be grown by adding more elements to your product. However, if incorporating additional elements into your product proves too difficult or costly, improving your product’s performance on the elements you are already targeting is another route to increasing sales. Adding or improving elements will increase the product’s value to the consumer, which will make them more willing to buy even if prices aren’t cut. Over time, if the product significantly increases in value, the company may even be able to justify increasing prices while still maintaining sales and profits.
Choose your elements strategically
Unfortunately, it would be impossible to create a product which uses all of the elements. The largest number of elements that were used by a single brand was just 11. Therefore, it is important to choose your elements strategically. This means that you should prioritize targeting the elements which consumers in your industry value the most. Every industry has certain values that are the most important to consumers. For example, customers of smartphones will most likely prioritize values such as “connects” and “reduces effort”, while customers in the auto insurance industry might prioritize “reduces anxiety” or “reduces cost”. It is important to pay attention to the values which are most significant to the consumers in your industry. This will help you identify which elements you should target when formulating your marketing strategy.
Quality is priority
Interestingly, researchers found that quality was the most important value to consumers, regardless of the industry. In fact, they found that no combination of elements could make up for a significant lack in quality. This means that before you start to add other elements to your product, you should make sure it is performing on measures of quality.
Choose from different categories of value
Finally, it is important to make sure your product uses values from different categories in the pyramid. A product which offers life-changing value such as “motivation” won’t be profitable if it doesn’t hold any practical value to the consumer. In order to fulfill any of the elements towards the top, the product must also hold value by fulfilling some functional elements at the bottom. The most profitable elements are those which fulfill values in a variety of categories.
It’s all about the customers
The bottom line of all this advice is that marketing should be focused on the needs and desires of the consumer, not prices. The sentiment behind the Elements of Value Pyramid is that marketing should be consumer-centric. In fact, companies which adopt consumer-centric marketing strategies are 60% more successful than those which use alternative tactics. The Elements of Value Pyramid hints at the larger idea that if you want your company to be successful, you should spend your time focusing on your consumers and not yourself.
How to go consumer-centric
So, what does a consumer-centric marketing strategy look like? To start, it means paying attention to the opinions, preferences, needs, and interests of your buyers. Consumer-centric marketers spend a lot of time collecting data on consumers within their industry to figure out how their product can best serve their buyers. This means conducting qualitative research such as focus groups or surveys. Collecting this data will give you insight into the identity of your consumers, so you can discover how to add value to their lives.
It comes down to basic empathy. Consumer-centric marketing means seeing the world from the eyes of the consumer. Once brands figure out how to do this successfully, they can provide exactly what their customers want. If you haven’t begun already, it’s time to start listening.
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