Marketers know that when consumers evaluate a product or service, they weigh its perceived value against the asking price and that the value can be functional, social or psychological.
And, of course, marketing 101 is that a brand can influence the perception of value, with brand equity contributing to lower price sensitivity. Otherwise, Apple could not really ask almost £1,000 for an iPhone X.
The internal processes that consumers go through to value things are mostly invisible, yet for marketers will have to get perspective on the concept, process, and experience of value to create brands consumers will value in the future.
Bubbles, economists, customers and marketers
Economists have a phrase called ‘utility value’ – the value that someone expects to get from getting or using a product, service or the satisfaction that they’ll get from it. Humans tend not to act in accordance with the definition.
In the 1600s, the Dutch went crazy for tulip bulbs and created a tulip bubble during which people were paying the equivalent of 10 years’ worth of income for one bulb. We have just gone through a bitcoin bubble. Someone recently bought a Ferrari for $68m and a Claude Monet painting for $100m. What does value mean in that context? What is value when it is fuelled by fashion, manipulation, and greed?
In reality, when you explore the concept of value further, it’s clear that marketers – and humans in general – have different definitions of value compared to economists.
Technology has allowed brands to create new value by doing something entirely new.
What consumers truly value, however, can be difficult to pin down and psychologically complicated: we value different things, and we value them in different ways. As marketers, we intrinsically know that the nature of value in a particular product or service always lie with the consumer.
Good marketers know that consumers saying something is “convenient” is not really enough: we know the value comes from a combination of being friction-free hassle, giving us time, making us feel happy, helping us learn, or assisting us in achieving a task.
But what if the notion of value is changing, driven by changes in the global conversations around the likes of climate change, plastic waste, income and gender equality?
What is value creation? The more formal definition of value creation is any process that creates outputs that are more valuable and have greater usefulness than its inputs. Value creation in the past was a function of economies of scale, mass production and repeatable activities.
But this notion of creating value has changed. Technology has allowed brands to create new value by doing something entirely new, creating more value by delivering more for the same price or create better value delivering better combinations.
A great example is Nespresso: pop in the capsule, push the button, and immediate fresh coffee. The consumer is buying convenience, one capsule at a time, but, in reality, is paying close to £100 for a kilo of coffee. The Nespresso ecosystem means they can charge a premium for each and every cup.
Similarly, Uber creates value by combining a series of functionalities in one app that brings willing buyers and sellers on the spot. Netflix is creating incredible value with its unlimited content available 24/7 instead of appointment-to-view. Google creates value by delivering accurate search results while capturing value by inserting relevant ads priced through auction at the top of search results.
You can create value for customers and you can create value for shareholders: ideally the two are linked. Is it possible to create profit without creating value? Certain brand owners appear to be analysing, estimating, and calculating value to the minimum amount they can deliver compared to the maximum return they give shareholders.
Let’s take Thames Water, the UK’s largest water company, as an example. In the last few years, it has been fined for releasing raw sewage into the Thames, losing more in leaks that water it provides, to say nothing of asbestos pipes and giving so much cash to shareholders that Thames Water cannot fund its pension scheme or its legally required investment requirements.
Value extractor brands based their business models primarily on the costs and benefits to others, to wider societies, to ecosystems, and make it someone else’s problem. Economists have a great word for it: ‘externalities’.
Marketers will need to get obsessed with new ways of defining value that are no longer in isolation from the wider context.
Less glaringly egregious is Kraft Heinz. This is the one time where investors and marketers can agree on the reason for the multi-billion write off of brand valuations: the aggressive cost-cutting resulting in underinvestment in marketing and innovation. Kraft Heinz management believed that operational effectiveness would drive sufficient value, with the value being for shareholders – not consumers. But they were mistaken.
And are Uber, Netflix and Google true value creators or are they value extractors? Some argue that the big tech brands treat users as mere means rather than ends.
Google uses our data to target us, the data we share on Facebook is being abused, Uber relies on low-wage gig economy to deliver its services. How about the effect of 10 billion Nespresso aluminium and plastic pods used each year and their effect on the effect on the environment?
The future of value
The transformation of the economic and cultural landscape means a very different era for marketers awaits. Marketers need to understand that as a result, the very notion of value is changing.
True, human nature is going to not going to change much, and our desire for products that make our lives better, easier or more fulfilling will continue. As Jeff Bezos says, people’s wish for lower prices and faster delivery won’t change in the next 10 to 20 years, so consumers will simultaneously demand greater availability and value for money.
But it’s hard to see a world where value creation by brands is de-linked from the wider effect that brand is having. It simply won’t be allowed. FMCG brands using products that pollute the oceans with plastics, cars that spew diesel fumes, and products that create inequality will be seen more as value extractors.
Marketers will need to get obsessed with new ways of defining value that are no longer in isolation from the wider context. Indeed, the likes of Unilever are already leading with this, with their stated purpose to ‘make sustainable living commonplace’.
The future of value creation by brands will come from the most creative, innovative and sustainable combinations of new ingredients, technologies and processes.
Where will all these value combinations come from? From a diversity of ideas, driven by a diversity of people. And, who is already telling us that they want diversity of choice, whilst not being harmful to the environment? The consumer—the true arbiters of value.