Without saying so or even consciously thinking it, consumers across the globe have redefined “value” and “benefit.” This is the first part of a Freehand Circle series which examines what happens when the entire value exchange is upended.
(Click here for Part II)
For over two centuries marketing has been about how companies optimize selling their goods/services to consumers. Consumers pay a certain cost for a good or service because they believe the benefits of that good/service are equal to, or exceed, the monetary price. That calculation is called the value exchange and is traditionally represented as Value = Benefits / Cost.
Now this core tenet of marketing is breaking down. Benefit has traditionally been defined as entirely personal, a one-to-one exchange between a consumer and a brand. Yet that underlying concept has become fundamentally outdated. The benefit of a product or service is no longer defined by an individual consumption experience but rather a communal one.
Freehand Circle has deemed those communal experiences “The Invisible Experience” for two reasons. First, these communal experiences are wholly outside consumers' direct experiences and are therefore ‘invisible.’ The second—and possibly more important—reason is current measurement does not adequately capture these shifting attitudes; leaving marketers wholly incapable of studying and eventually resolving this issue.
The Traditional V=B/C Equation
Before tearing down the traditional value exchange it is important to study what it is, where it came from and why it has been so useful for so long.
For example, when a consumer buys a hamburger they decide that the hamburger's benefits (taste, nutrition, convenience) outweigh the price.
Simple.
No doubt aided by its own simplicity, Value is the rare equation used by both economists and marketers. V=B/C spans disciplines with very little common orthodoxy. After all, Economists rely on the concept of rational actors. Marketers capture all the times we are not. Yet the Benefit versus Cost equation works across every industry because it boils all variables—every complexity—into one linear relationship: One Person, One Product/Service. Think of Value as the private Cost/Benefit equation we all perform every day.
Cost, Benefit, and the Invisible Experience
The traditional value equation weighs the importance of two different personal experiences: cost, which is the purchase experience, and benefit, which is the lifetime experience.
Cost is the purchase experience itself. Price is price—simple and quantitative. “Did I get a good deal?” can be answered by price comparison alone.
Benefit is the lifetime experience with a product (or, in the case of a service, the lifetime aftermath of the service). Benefit encompasses every personal consumer experience except for the cost of the item itself. Unlike Cost, Benefit is a complex and nebulous metric. Words like ‘performance,’ ‘reliability,’ ‘overall satisfaction’ and other terms lifted from Consumer Reports aim to quantify what is an essentially personal emotional feeling. For all the complexity, Lifetime Experience can be easily described as one’s satisfaction. How much effort are you willing to put into the ownership of a product? Seen through the lens of Lifetime Experience, Benefit is obviously personal because each person must decide how much overhead they want to deal with. The lifetime experience encompass everything else.
Well almost everything else…
Everything Else is the Invisible Experience
Everything else is the invisible experience because examining value solely through one’s personal experience is far too narrow. Consumers now weigh the impact of their purchase outside the confines of just their personal experience. Their consideration set is expanding to include variables beyond their own experience and focuses on where and how products (or services) are made. This third element of the Value equation is the true invisible hand of our purchases and includes supply chain, environment, labor, drivers on the road, internal company memos, HR policies, political donations and stewardship. In other words, there is a third facet of value—one that consumers never directly experience.
Marketers/economists are also not capturing these attitudes because Benefit has always equated to the actual consumer’s personal experience. These new communal considerations (The Invisible Experience) are outside of the V=B/C equation.
Loop back to the traditional V=B/C equation. It seems so simple as to be almost perfect. Yet the economic value of a good or service—the core relationship between the variables—has puzzled economists since the beginning of the discipline. Consumers are more dynamic than equations and their consideration set vacillates. Freehand Circle is not simply stating some humanistic diatribe that people are more than pieces of paper. Economists struggle with V=B/C precisely because the equation focuses too much on individual experience alone.
"Benefit has always equated to the actual consumer’s personal experience. These new communal considerations (The Invisible Experience) are outside of the V=B/C equation."
The Invisible Experience isn’t a new platform or fad that brands need to adjust to; it is a realignment of the value exchange itself. John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half." Redefining the traditional value exchange to include the communal and finally measure The Invisible Experience isn’t just about 50% of your marketing budget.
In fact this is larger than marketing as a whole and connects directly to your brand’s ability to survive--regardless of industry, size or audience.
WRONG AT ANY PRICE
A New Consideration for Consumers
In Part II of our series Freehand Circle delves deeper into the consumer mindset--what is driving it and how brands can better communicate to changing attitudes.