Measuring the Simple Truth of Value

Blog Post

The Simple Truth of Value, as laid out by one of our founding partners, says that “people buy and do things they perceive as being worth what they put in.”  This psychology permeates literally every decision that a person makes, from whether it’s “worth it” to have a steak instead of salad, to whether it’s “worth it” to go back to school for an MBA, to whether it’s “worth it” to purchase a product from a hip new brand rather than the competitor we already know.

Value Perceptions Drive Everything People Do

Since the concept of a funnel enjoys quite widespread understanding among executives, brand managers, and insights professionals, they are often the best way for emerging brands to begin to practice measuring brand health in the real world. In today’s article, we are going to get a little more sophisticated as we talk about brand performance, drivers of consumer psychology, and comparing your own brand’s performance against competitors.

And we are going to do all of these things using a truly universal principle that spans every single industry, business, and consumer relationship. In fact, it’s so universal that this principle guides every personal and professional decision we make as human beings.

We call it The Simple Truth of Value.

The Simple Truth of Value, as laid out by one of our founding partners, says that “people buy and do things they perceive as being worth what they put in.”  This psychology permeates literally every decision that a person makes, from whether it’s worth it to have a steak instead of salad, to whether it’s worth it to go back to school for an MBA, to whether it’s worth it to purchase a product from a hip new brand rather than the competitor we already know.

It’s a beautiful jacket, but between the clunky ordering experience and expensive price tag, it’s just not worth it.

It’s a beautiful jacket, but between the clunky ordering experience and expensive price tag, it’s just not worth it.

Sleepless nights and heightened stress. But the joy she’ll bring will make the whole process completely worth it.

Sleepless nights and heightened stress. But the joy she’ll bring will make the whole process completely worth it.

Sure, the burger you want for dinner is unhealthy and will leave you feeling bloated, but the mouth-watering taste might just make it worth it.

Sure, the burger you want for dinner is unhealthy and will leave you feeling bloated, but the mouth-watering taste might just make it worth it.

What’s more, the psychology of value can be disassembled in powerful - though surprisingly simple - ways that empower us to measure the performance of our products, services, and brand reputation with consumers. In doing so, we focus on the individual drivers of value (sometimes called purchase criteria) that determine which products consumers buy. We measure their importance relative to other value drivers, monitor how our brand is performing on each of them, and constantly compare those scores to data on our competitors. The result is a powerful approach to measuring customer satisfaction, brand reputation, and competitive positioning that can drive real business decisions like no system we have ever seen.

Value Drivers

While a brand’s funnel describes the way that new customers come to discover its product offering, value perceptions and loyalty metrics are the way to understand how well it retains those new customers. The drivers of value in any given market are unique, but they almost always break down into elements of quality and elements of cost. 

By dissecting the individual elements of quality and cost, you can begin to understand how much each specific value driver matters when consumers make a purchase decision. The diagram we’ve included here represents a number of value drivers in the market for fitness classes and apps, such as Soul Cycle, Orangetheory, and Peloton Digital. It is taken from Langston’s 2020 study of brands in this space, and takes a form called a “Value Tree.” 

Value trees can get more and more complicated as we add sub-branches to each of the attributes. For example, in the fitness classes and apps value tree below, we might imagine that the “Instructors” branch has the following sub-branches: expertise, energy & motivation, teaching effectiveness, and welcoming attitude. While value trees can stretch four or five levels deep, we typically find that a three-level tree - like the one pictured here - captures enough detail to illustrate the important drivers of customer value while not overwhelming business stakeholders with a laundry list of attributes and sub-attributes to keep track of.

Researchers have uncovered links between customer satisfaction and perceived value, willingness to recommend products, and propensity to take profit-creating actions (such as buying products without a discount). One of these relationships is the relationship between perceived value (Worth What I Paid) and the recommendation metric commonly referred to as Net Promoter Score* (NPS). This dynamic - originally documented by Ray Korddupleski in his work on Customer Value Management - has been called “the slippery slope.” This dynamic is so important and meaningful that we’ll be posting a separate article on it later this year.

In the remainder of this article, we’re going to cover three basic metrics that you can and should collect on value drivers in your brand tracker:

  1. How are we doing on each value driver - in the eyes of consumers?

  2. How much does each driver matter to the consumers we care most about?

  3. How do our scores stack up against competitors? (Teaser: this one predicts changes in market share months before they happen).

Our Brand’s Performance Across Value Drivers

As we turn our attention to actually measuring performance, it’s worth taking a moment to reflect on the collection of success metrics in your business. Many businesses monitor a series of key performance indicators (KPIs) that tie to their financial performance. In a retail business, these might be metrics like average basket size, average selling price, and even in-stock rates. For an online marketplace, these probably include daily and monthly active users as well as conversion rates and delivery timelines. In any business, KPIs commonly include top-line revenue, gross margin, new buyers, and repeat purchases.

All of these metrics have one thing in common - they are, in whole or in part, outcomes of consumer behavior; and while all of them are important measures, the most important component of a business’s success is the value perceived by customers. Despite the operational usefulness of a company’s internal measures of performance, none of them can directly make consumers buy its products or recommend it to friends. 

At the end of the day, only the value perceived by customers drives their decision to buy and contribute to the company’s growth. That’s why measuring consumer value perceptions is such a critical exercise for every company - those perceptions are the ingredients for consumer decisions that fuel purchases, discounts and margin, brand reputation, and competitive positioning. They even help us understand and predict NPS and purchase intent, and often predict changes in market share months before they occur. All of these common metrics come down to the basic principle of whether customers feel that your products and services are worth it for what they cost.

And with that, we turn our attention to the job of measuring customer value perceptions. 

After settling on a model for customer value in your industry, measuring performance is relatively straightforward. We simply ask respondents to rate their satisfaction with each value driver on a scale from 1 to 10, where 1 is “totally unsatisfied” and 10 is “totally satisfied.”

We gather these ratings in modules, grouped according to the branches of the value tree, so all of the sub-attributes of quality are asked (in randomized order) before we ask for a rating on “quality overall.” Then, we might collect ratings on all of the sub-attributes of price (in randomized order) before asking respondents to rate “price overall.” Finally, we ask respondents to consider all of their quality and price ratings before rating the overall product/service as being “worth what you pay.” 

Respondent ratings across these variables can then be aggregated and analyzed in a number of ways, but the simplest approach is to simply report on the average scores for your brand on each element. Averages can be calculated for the survey sample as a whole, as well as re-calculated for specific segments and sub-groups of consumers that really matter. We recommend slicing performance ratings by:

  • Buyers vs Non-buyers vs. Lapsed Buyers

  • Frequent Shoppers vs. Infrequent Shoppers vs. One-Time Buyers

  • Segments identified by any previous customer segmentation research

  • Relevant demographic and psychographic characteristics

Other Questions You Should Ask Along With Value

Once you have gathered simple ratings across the attributes and sub-attributes of value, it’s an ideal time to ask questions about other consumer behaviors, such as their willingness to recommend the brand to friends or their willingness to increase the share of purchases they make with your company over alternative providers. If you haven’t already asked about their likelihood to purchase this brand in a funnel module, you can also do that here (but we really, really think you should include a funnel module. See our The Brand Funnel 101 article for background and tips on this simple-yet-critical methodology).

Gathering ratings across all key elements of perceived value allows us to build quite a comprehensive picture of the decision-making ingredients that drive consumers’ behavior around the brand. We can see how performance changes over time on key consumer indicators such as perceived value, NPS, and purchase intent, and we can also see how drivers and sub-attributes of those factors moved at the same time. Because the psychology of value is a driver of all behavior, it creates massive influence over consumer decisions to do things like speak favorably and recommend your brand (NPS), purchase from your brand again, and increase their spend with you. In this way, we are measuring the behavioral outcomes that drive business success and the perception inputs to those behaviors at the same time.

This creates a tremendous amount of power in the data because - in addition to seeing how the critical metrics move in a given period - we can explain why they went up or down. Adding this level of detail in a robust and reliable way is the starting point for making decisions and taking business action on the consumer data. Since the only reason we collect consumer data is to drive improvement, this is a pretty meaningful outcome of having a measurement system that’s predisposed to driving actionable insights.

Relative Importance of Each Value Driver

One mistake that business leaders often make is to spread their focus and resources across too many parts of the customer value equation. One major reason that businesses get spread too thin is that they treat everything they measure as if it’s equally important. While all elements of customer value are important, they are not equally important at all times. The truth is that businesses and their leaders have to choose priorities, focus on goals, and create organizational alignment to achieve them.

We may be underperforming on three key customer value drivers while over-performing on two others and performing at “par” on two more. The organization probably needs to focus on just two or three of these areas at a time to really drive improvement. Do we work on the three areas where we are underperforming? Or focus on an area where we’re over-performing in order to exploit the advantages we have? Or is it important to work on the parts of our business that are  “just okay” so we can create new strengths? 

The most impactful way to answer these questions is to evaluate how much each of those value drivers matters to the customers we have and the customers we want. Understanding how each purchase criteria stacks up against the others - in the eyes of customers - enables teams to choose priorities, create focus, and make change happen. This is why the most effective way for customer and brand metrics to support priority-setting is to create perspective on the relative importance of each metric when they’re reported. 

What do consumers care about most when it comes to mobile payments? Convenience? Fees? Transparency? A value driver analysis provides a way to quantify the relationship between these variables and overall perceived value.

What do consumers care about most when it comes to mobile payments? Convenience? Fees? Transparency? A value driver analysis provides a way to quantify the relationship between these variables and overall perceived value.

There are lots of ways to quantify the relative importance of various metrics. Simple approaches might involve asking consumers to rank purchase criteria by order of importance or even using the company’s own employees to estimate the relative impact of each value driver. While each of these methods is subject to a significant number of potential flaws, they do offer the benefit of contextualizing the performance scores that are reported by brand or customer satisfaction drivers. 

For methodological reasons, we can’t recommend these approaches as permanent parts of brand tracking efforts, but we absolutely support the idea of starting with them. Even the simple act of asking a question like “How much weight do you think each of these scores has on the overall perceived value?” can encourage the context and nuance that leaders need to translate customer data into priorities. 

For our own brand trackers, Langston uses a specific type of regression analysis to identify the statistical linkages between underlying value drivers and overall loyalty behaviors. Through this analysis, we derive the correlations between value drivers and customer decisions in such a way that we can approximate “impact weights” for each of them. This approach removes a critical layer of respondent bias when determining what matters to customers in the market. It also creates a set of very clear and easy-to-interpret indicators of relative importance, which we have found gives business leaders the confidence to choose where to focus (and by extension, where not to focus) the business in a given period of time. The result is that more metrics get used while fewer get ignored or misunderstood, and the business benefits by taking real action against the customer data.

Competitive Scoring: The Key to Successful Predictions and Decision-Making

Once you have a plan to measure your company’s performance and the relative importance of each value driver, there is one more piece of data that’s critical to understanding and improving your competitive position. How are your competitors performing on those same factors?

As we said earlier, customers select the products and services that they perceive as being most worth what they pay. An operative word in this phrase is “most.” In a world growing increasingly more competitive all the time, we have to keep track of our performance relative to the other options our target consumer has to meet their needs. We care how our customers perceive our own offering relative to their perceptions of competitor offerings.

Even if a consumer has not bought from you, they often have clear perceptions of the value that your company offers - whether or not it is worth buying your products or services. In fact, it is often these value perceptions that keep would-be customers from trying your brand. For this reason, measuring value perceptions among non-buyers is just as critical to driving improvement and growth in your business as understanding your current customers. This is equally true for consumers who have never tried your brand as it is for those who used to buy from you but have since stopped.

Don’t just track the value perceptions of your buyers. How non-buyers perceive your brand is critical for building smart new customer acquisition strategies.

Don’t just track the value perceptions of your buyers. How non-buyers perceive your brand is critical for building smart new customer acquisition strategies.

Once you gather customer perceptions of value drivers at your and your competitors brands - and you’ve quantified the relative importance of each one - you can drive incredibly meaningful action in the organization. Bringing several pieces of information into an easily digestible format can be made easier with the use of ratios to report competitive score. By dividing your score on any given metric by a competitor’s score, you can illustrate the competitive positioning of each brand in a simple number - scores below one are worse than the competitor while scores above one are better than the competitor. 

These ratios - which Ray Korddupleski and other leaders in Customer Value Management practices call “Customer Value Added” (CVA) ratios - are hugely impactful. In many cases, they have been shown to predict changes in market share months before they happen (since these scores quantify perceived value, which drives nearly every decision a person makes). Thus, CVA ratios can simultaneously tell you what is likely to happen in the future and empower you to change that outcome.

Furthermore, many Langston partners have seen CVA ratios immediately dissolve decision paralysis in organizations that were unable to move forward due to low confidence and alignment around what really matters. The perspective, urgency, and competitive spirit that are evoked by reporting competitor performance ratings are second only to the strategic power of the information they reveal.

Concluding Words

If nearly every human decision is driven by perceived value - whether something is worth the cost of doing or obtaining it - then it makes sense that every brand tracker should strive to measure the components of value perceptions. Simply by modeling the equation that drives perceived value in your market, you will create clarity and alignment in whole new ways.

Go a few steps further by measuring your performance relative to competitors across the element of value, then quantify the relative importance of each element, and you’ve created a recipe for powerful decision making based directly on the data gathered from consumers. If you don’t have a module to track and report customer value perceptions in each of these ways, you need to add it today.

You can trust us when we say, “it will be worth it.”

We are passionate about this topic and would love to answer any questions you might have about The Simple Truth of Value. Click below to schedule a complimentary 30 minute call with an expert from Langston.

DISCLAIMER: We base our research, recommendations, and forecasts on techniques, information and sources we believe to be reliable. We cannot guarantee future accuracy and results. The Langston Co. will not be liable for any loss or damage caused by a reader's reliance on our research.