How Customers Perceive Value

Understanding the value perceptions of customers is critical no matter what industry you are in or role you play in your organization. As a business owner you must understand your target market as thoroughly as possible in order to effectively manage all elements of your business.

The challenge is that understanding how your customers perceive value is difficult to quantify due to its subjectivity. Value perceptions are influenced by many variables including attitudes, culture, social standing, political affiliation and a myriad of other influencers. How then can we make any measure of value perception responsibly? One thing we know we can do is understand how our mind fundamentally processes data at the subconscious level before our emotive and logic receptors muddy up the waters.

Let’s take the following series of images to illustrate this process:

 

howyourcustomersperceivevalueimage

Being that our minds are systematic and finite in their operation, it first attributes 100% of the possible value to the entire series. It then dissects the series of images and makes value judgments based on physiological triggers. Our mind confirms that spatially, these four images are of equal size, shape and spacing. Therefore, our mind attributes an equal 25% of value to each of the four images. At this point, as far as our mind is concerned, these four images are equal.

The next thing our mind does is process color. Because red has the lowest frequency and highest wavelength of any color, it is the first to reach our eye (this is why important things are red…like stop signs, fire trucks and Twizzlers). Yellow is the second to hit our eye followed by green and then blue. Our mind concludes that the red square must be more valuable than the yellow square which is more valuable than the green square, etc. Keep in mind that these processes are happening in a nanosecond before our core emotional reactions tell us that the red square makes us feel energetic, the yellow square makes us feel happy, the green square makes us feel comfortable and the blue square makes us feel creative.

Keeping this process in mind, it is important to understand that every potential customer makes a multitude of value judgments, on a subconscious level, about the messages they receive from your business. Do the value judgments that are made about your business help or hurt your brand as it applies to the position your brand holds in the human mind?

A frequent radio advertisement in our area depicts a handyman business with the owner declaring “I’m not sure if everyone realizes all of the things we can do.” He then begins spouting off all of the services his company can perform such as basements, kitchens, bathrooms, roof repair, plumbing, heating & AC, floor repair, foundation crack repair, siding, windows, guttering, decking and a number of other services – the list is long and forgettable (For the purposes of this piece we will ignore the fact that average human mind can only remember four to five items in any list without applying a mnemonic device). Because the only sense being utilized in this example is auditory, our mind breaks the statements that are made into a series, again applying 100% of total value to the entire service portfolio of the company. Each time this owner reveals another service our mind divides the value of the overall service portfolio in half. This means that if ten services were mentioned in the advertisement our mind attributes 10% of value to each service. So, before our mind even begins processing the specific messages being communicated it thinks that the company provides a whole lot of services…but it isn’t good at any of them.

Think of the most powerful brands that exist in our society. With few exceptions, these brands represent one concept in the human mind.

  • Google = search
  • McDonalds = hamburger
  • Coca-Cola = soft drink
  • IBM = business computers
  • Intel = computer processors
  • BMW = driving machine
  • Nike = athletic shoes
  • Budweiser = beer
  • Microsoft = software
  • Apple = computer electronics

While you might argue that our remodeling company does represent the concept “remodeler”, you should ask yourself how effective is this concept in the human mind? If you want a new deck don’t you think to call a decking company? If you need work done to your roof don’t you call a roofing company? If your pipes are leaking don’t you call a plumber? Many companies such as this one tend to group as many services together as they can in hopes that you think of them when something in your house goes wrong – they want to be all things to all people. Unfortunately, our mind simply does not work like that.

At the end of the remodeling company radio commercial, our owner says “Oh ya, we are also problem solvers, I think we have seen just about every problem there is.” This statement, which is thrown in as an afterthought, is actually the only effective brand statement in the entire commercial. This company should embrace the concept of “home problem solvers”. This concept implies strategic thinking and could be established as a premium brand to which there are many advantages, but most importantly, it is a clear, concise message that is easy to remember and that our mind will attribute 100% of value.

What concept or service does your brand occupy in the human mind? Is it one clear, concise message with which the human mind can attribute 100% value? or can you do a multitude of services incompetently?

Shifting Your Thinking – The Revenue Pie Theory

Throughout my career of working with startup businesses and entrepreneurial thinkers I have found several common lines of beliefs shared by many of my clients. One of the most common shared beliefs that I have observed is one that I call “The Revenue Pie Theory”. Yes, I know – it is not a terribly clever name.

The Revenue Pie Theory starts with the thinking of many business owners and solopreneurs during the startup phases of their company or career. Commonly, these individuals have explicitly identified, at minimum, an industry segment and geography in which they plan to focus and the estimated size of the revenue “pie” in which their business resides. For instance, let’s say Jim performs residential remodeling in suburbs on the Missouri side. Based on his research Jim estimates that there is approximately $100 million dollars of possible annual revenue in this pie given the industry segment and geography. With this information Jim creates the following belief system:

“All I need to do is get one-tenth of one percent (.001) of that market and I will make $100,000”

This belief establishes a false sense of optimism in the mind of the business owner, “how hard could it be to get one-tenth of one percent?” Well, harder than you might think. What most startups don’t realize is that when you enter into an existing market you have virtually every variable working against you. Market leaders are investing millions of dollars into marketing, advertising, research and development and they are creating barriers of entry through technology, municipal legislation, and they have already established economies of scale. Basically, they are doing everything they can to make sure that people like Jim can’t just open up shop and take market share away from them.

Instead I would recommend a more radical approach. Create your own pie. A fundamental shift from competing for someone else’s pie to creating your own has virtually no down side in both the short and long term. The most challenging element of this shift is the fear associated with entering into a market that does not explicitly exist and that has no money in the pie. Interestingly, I have found this process of shifting pies is in direct violation of how the typical business mind operates. The traditional way of thinking involves viewing everyone as a potential customer and claiming you can do everything which will seemingly diversify your risk. However, the inverse is actually true.

Virtually every market leader you can think of has made this shift. Initial market research performed by Starbucks said people weren’t going to drink a $6 cup of coffee. The category hadn’t been created yet. If 15 years ago I said to you “Hey, lets get together for some expensive coffee.” You wouldn’t have known what I was talking about; “What? Are we going to go buy a bunch of Folgers and drink it somewhere?” Instead of entering into the pie with Folgers and Maxwell House, a battle it would have certainly lost, Starbucks created its own category and its own revenue pie. A pie it owns almost all of even given the countless copy cats that have emerged throughout the years.

Don’t compete for someone else’s pie, create your own. Jim should narrow his scope and create his own pie which could be only remodeling garage spaces in single-family homes in Raytown or remodeling decks on apartment complex’s in Jackson County that are greater than 4 stories. Create a category that is unique and you will maintain focus, build a meaningful and powerful brand and most importantly, own the entire pie.