BOSTON, MA--(Marketwired - September 19, 2016) - A chronic problem facing executive teams is their emphasis on searching for breakthrough innovations -- a truly new, highly valued product or service such as the iPhone that would redefine their industry and lead to unprecedented revenue growth. Coming up with these game changers requires anticipating what consumers consider valuable. Yet, the amount and nature of value in a particular project or service can be subjective and psychologically complicated.
A new report from Bain & Company, The Elements of Value, which was published in this month's issue of Harvard Business Review, uncovers 30 universal building blocks or elements of value -- the basic attributes of a product or service that address four kinds of consumer needs: functional, emotional, life changing, and social impact. When combined, these elements can help companies increase customer loyalty and revenue growth. The "elements of value" model is rooted in Abraham Maslow's "hierarchy of needs," but extends those insights to focus on people as consumers and describe their behavior around products and services. Similar to Maslow's hierarchy, the most powerful elements of value live at the top, and a company must provide at least some of the functional elements required by a particular product category to deliver on higher order elements.
"Breakthroughs may be worth pursuing, but our recent research shows most companies benefit more from incremental innovations that add new consumer value to their current products and services," said Eric Almquist, co-author of the report and brand strategy leader within the firm's Customer Strategy & Marketing Practice. "However, the trick these companies often face is determining what elements to add in order to boost the perceived value of their existing offering."
Bain, together with Research Now, an online sampling and data collection company, has surveyed more than 10,000 U.S. consumers about their perceptions of over 50 U.S.-based companies to test whether these elements of value can be tied to company performance -- specifically, a company's customer relationships and revenue growth. They found that companies that performed well on multiple elements of value have more loyal customers than the rest. Companies with high scores (defined as an 8 or above) on four or more elements from at least 50 percent of respondents -- such as Apple, Samsung, USAA, TOMS, and Amazon -- had, on average, three times the customer advocacy of companies with just one high score, and 20 times that of companies with none. Further, companies doing well on multiple elements grow revenue faster than others. Those that scored high on four or more elements had recent revenue growth four times greater than that of companies with only one high score.
Almquist and his team also examined how the elements translate to successful business performance, using the data to identify three patterns of value creation:
- Some elements do matter more than others. Across all the industries studied, perceived quality affects customer loyalty more than any other element. Products and services must attain a certain minimum level, and no other elements can make up for a significant shortfall on this one.
- Consumers perceive digital firms as offering more value. Well-designed online businesses make many consumer interactions easier and more convenient. Mainly digital companies thus excel on saves time and avoids hassles.
- Brick-and-mortar businesses can still win on certain elements. Omnichannel retailers win on some emotional and life-changing elements. For example, they are twice as likely as online-only retailers to score high on badge value, attractiveness, and affiliation and belonging. Consumers who get help from employees in stores give much higher ratings to those retailers; indeed, emotional elements have probably helped some store-based retailers stay in business.
"The elements of value work best when a company's leaders recognize them as a growth opportunity and make value a priority. They should be at least as important as cost management, pricing, and customer loyalty," said Almquist.
Companies have begun to use the "elements of value" model in several practical ways, instilling a "hunt for value" mentality in their employees. Although many successful entrepreneurs have instinctively found ways to deliver value as part of their innovation process, that process becomes harder as companies grow. The elements can help them identify new value once again. Other companies have used the elements to identify where customers perceive strengths and weaknesses. The broadest commercial potential of the elements model currently lies in developing new types of value to provide.
According to the report, companies can establish a discipline around improving value in some key areas:
- New-product development. The elements of value model can stimulate ideas for new products and for elements to add to existing products.
- Pricing. Managers commonly view pricing as one of the most important levers in demand management, because when demand is constant, higher prices accrue directly to profits. But higher prices also change the consumer value equation, so any discussion about raising prices should consider the addition of value elements.
- Customer segmentation. Most companies have a formal method of segmenting their customers into demographic or behavioral groups, which presents an opportunity to analyze what each of these groups values and then develop products and services that deliver those elements.
"The concept of value is rooted in psychology, but these elements of value can demystify it," said Almquist. "This model gives managers insight into how they can add value to their brands and ultimately gain an edge with consumers."
Editor's Note: To schedule an interview with Mr. Almquist, please contact: Dan Pinkney at firstname.lastname@example.org or +1 646 562 8102
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