Wednesday, March 29, 2017

Assessment of Interest and Engagement

It’s generally believed that a consumer will become interested in a proposal and remain engaged in the sales process if he perceives that the benefit he will receive is worth the cost of obtaining it.   This premise seems plausible, but it often leads to an assessment that fails to consider the breadth of costs involved, or at best a superficial monetization of benefit and cost that seems mathematically sound but still fails to explain or predict consumer behavior.

So while it is plausible that an opportunity in which benefit exceeds cost has the potential to be interesting and engaging to a prospect, benefit and cost are only two factors and are often considered superficially and out of context of the prospect’s entire portfolio of needs and resources.  A broader, deeper, and less quantifiable assessment is necessary to improve the accuracy of prediction and of strategy development.


The benefit is the total motivation of the prospect to obtain and use a product (good or service), which itself has a number of factors:

  • Functional Benefit – The practical results of using the product. 
  • Psychological Benefit – The feelings that are generated by the use of the product.
  • Esteem Benefit – The way that others will perceive the person who uses the product.
  • The Benefactor – The value of the relationship between the purchaser and the user of the product.

Each of these dimensions of benefit is imaginary and subjective.   They are imaginary because the benefits have not been experienced yet and may not be what the prospect imagines (even if it is a repurchase, he imagines the benefits will be the same as before.   They are subjective because each person places a different value on the same benefit, e.g. esteem is more important (hence valuable) to some than others.


The benefits that the prospect predicts are first assessed against the cost of obtaining them, but this is often considered in a superficial and limited manner.  The seller may consider the money-price as his revenue, but the prospect considers the full scope of costs:

  • Money Price – The amount the buyer expects to pay the seller, plus any additional money costs that the prospect will incur (taxes, delivery fees, etc.) that require an expenditure of cash.
  • Method and Terms of Payment – In some instances, the prospect may consider the methods and terms of payment unacceptable or inconvenient, particularly when hey violate expectations.
  • Time Required – This includes both the time required to make the purchase and the time required to use the product to obtain the benefit.
  • Effort Required – Likewise, this includes the effort required to make the purchase and that required to use the product to obtain the benefit.

Of all these costs, only the money-price is quantifiable: the rest remain subjective and tend to be of much greater importance to the buyer than to the seller, who is prone to be dismissive of them.   Hence, the most common mistake made by those who wish to compete on price is figuring that the money price is the only element that will be considered by the buyer.


Most experienced customers have been disappointed in one way or another by a purchase they have made in the past, and are likely to be leery of future purchases.   Specifically, they are likely to consider the possibility that the deal will not work out as expected.   Factors of risk include:

  • Certainty of Benefits – The assessment of whether the functional, psychological, and esteem benefits of the purchase will be satisfactory to both the purchaser and the benefactor
  • Certainly of Costs – The prediction of whether the expected costs (price, terms, time, and effort) are accurate, and the fear that there will be additional costs involved.
  • Certainty of Abilities – The consideration of whether the purchaser and benefactor have the ability to obtain the product and derive the desired benefits from it

All risks are imaginary and subjective.   The prospect imagines what might go wrong and performs an assessment of whether they will be encountered.   Where the prospect has experience with both vendor and product, the fear of risk is mitigated, but uncertainty still remains because past performance is not a guarantee of future results.

Opportunity Costs

External to the purchase, but implicit in the buying situation, is the consideration of opportunity costs:  the money, time, and effort that is required to obtain and use a product is deducted from the total budget of the purchaser, user, and beneficiary of the product.   An assessment of opportunity cost should consider these factors:

  • Competing Needs – The estimation of the value of the fulfillment of one need is seen in the context of all needs that the prospect has.  The benefit of this purchase may be relatively unimportant.
  • Competing Costs – The money, time, and effort of obtaining a product are considered in terms of the overall impact to the prospect’s budget.   Even if the need is important, the cost may represent too great a sacrifice.
  • Proportion of Resources – In some instances, a prospect may consider the proportion of his available resources that must be devoted to a given need.  To spend a significant portion of one’s budget on one purchase creates a heightened level of anxiety about the purchase.

In all instances, opportunity costs involve the assessment of sacrifice, which is defined as the loss of a greater value for the sake of a lesser one.   Rational individuals do not make sacrifices, but instead seek to pursue the greatest value even if it means foregoing lesser values (which is not by definition a sacrifice).  The opportunity must therefore be seen in the context of other values.

Interest and Engagement

Each of the factors above have largely been considered in the process of obtaining a product – but the purchase of the product is not the end a buyer seeks to achieve.   The buyer’s need is satisfied when the product is purchased and used, and only then is the value delivered.  Much can go wrong along the way.

Neglecting the totality of the experience is a very common mistake, made by buyers and sellers alike.   For the seller, neglecting engagement leads to dissatisfied customers and loss of repeat business.  For the buyer, neglecting engagement leads to wasted money, disused products, and a general sense of dissatisfaction.

Engagement is maintained by reinforcement of the assessment of the factors that led to interest: whether the prospect still believes the benefits will be received as expected, that only the costs expected will actually be incurred, that the risk remains moderate, and that the opportunity costs are acceptable.  If this fails at any point, the result will be abandonment: the customer will “drop out” of the sales funnel, or he will discontinue use of the product before receiving the benefits.

Conclusion and Caveat

The application of a broader and more detailed assessment of cost, benefits, risks, and opportunity costs can serve to improve marketing strategies: consider each of the factors and subfactors listed above from the perspective of the prospect (or prospects, where buyer and user are separate).

At the same time, this is a work in progress: what is presented here is the result of some research and meditation on the topic, and may not be comprehensive: additional factors will be identified and more granular details will arise.  This is not the ultimate answer, but merely a better one for the time being.

Wednesday, March 22, 2017

Experiential Competition

In an environment of intense competition, customers flock to providers who offer the best value proposition.  For manufacturers, the means of competition is a choice between offering better quality and lower price to tailor the features to the needs of a given market segment and provide a desirable solution at an affordable or advantageous price.   For retailers, the means of competition is a selection of product offerings that appeal to their chosen segment.

The constraints of reality, however, lead to commoditization where customer needs are similar.  Manufacturers will produce and retailers will offer a product with the same features and qualities at roughly the same price as their competitors.   The variations will be eroded by competitive pressure to gain market share by imitating the choices made by other vendors.

As a result, both quality and price gravitate toward commoditization and competitors must find more subjective an idiosyncratic means of competing for their desired market segments.  In practice, the means of competition become aligned with customer and consumer experience.

The term “experience” bas become nebulous, but is understandable in the reductive sense: it is about reducing the friction of interactions surrounding the product (obtaining and using it) while increasing the non-functional benefits of consumption (psychological and social factors).   Distinction is easy, but distinction in a manner that is relevant to the interests of a specific market is exceedingly difficult.  It requires more speculation, and is more difficult to address – because while it is simple to observe where customers are experiencing pain, it is difficult to imagine opportunities that might delight them.

Where experience becomes the distinguishing factor, the features and price of the product seem irrelevant – though in truth they are highly relevant to the market and compromising upon them will have disastrous consequences.   If the core value proposition is neglected or violated, the experiential components will be deemed irrelevant and the product will not succeed.   But so long as they can be preserved to the standard defined by the commodity, they are of little importance in winning consumer preference.

This shift toward experience-driven competition has been disconcerting to suppliers because it implicitly shifts control of the market from the producer to the consumer in a far more obvious way.  That is, consumers were always in control, as the ability to “vote” with their buying dollars is the measurement of the success to any decisions made internally within the supplier.   Hence the ability to “sell” is gained from proactive control, but from reactive accommodation.

In that sense, the notion of experience can be recognized as an opportunity for suppliers to engage in a more passive and receptive manner with their buyers, which reflects the manner in which this engagement should have been considered all along.   But the relevance of these decisions to the success of the firm has become more explicit and distinct.

Wednesday, March 15, 2017

Dilemmas in Consumer Motivation

I’ve had some interesting discussions about a recent post I did about the “Core Motivation of Consumer Behavior” that generally on the topic of the source of that motivation.    I’m not sure that this shapes up into a single topic, more of a meandering about related topics – so what follows may be a bit disjointed.  That said, here goes:

I previously mentioned that all consumer behavior is the result of irritation with the status quo: either the customer seeks to defend the status quo against a threat that has arisen or the customer seeks to improve his status quo because he has become dissatisfied with things as they are.   The nature and degree of this irritation must be assessed to decide whether a given product (good or service) is likely to have the desired impact and whether the cost of the product (price and effort) is less than the cost of taking no action.   This remains true, and is a very basic concept.

The first dilemma is that irritation is entirely subjective: a condition that one person finds irritating may be entirely innocuous to another.   Some people are particularly sensitive to some stimuli.

The second dilemma is that the evaluation of benefit is also subjective: how much it is worth to an individual to achieve a certain goal is difficult to quantify, particularly where the emotional costs are unknown.

A third dilemma is that the evaluation of cost is subjective:  while the money-cost of something is mostly objective (though it is subjectively evaluated by the individual’s budget) the effort-cost of acquisition and use is entirely subjective.

A fourth dilemma is the variance in the assessment of the effectiveness and efficiency of a solution:  until the solution has been purchased and implemented it is not known whether it will be at all effective in solving the problem, so in advance we can only speak about the degree to which a prospect believes a solution will be effective, which is also subjective.

A fifth dilemma is the lack of information about the universe of a given customer’s need: people have more than one problem, and the value of solving a problem is assessed in the context of their entire portfolio of concerns, hence the same problem may be prioritized differently by each customer.

All of these dilemmas make it difficult to assess the motivation of customers, both individually or in aggregate.  And this may be the reason that many seem to simply want to ignore core motivation and begin at the point where the customer has committed to purchasing and has decided on the cost he is willing to undertake.   To do so is to act without knowledge, hoping for the best.   And this is not a very good approach.

Wednesday, March 8, 2017

Profit as a Byproduct of Value

If it is maintained that “the love of money is the root of all kinds of evil,” then the pursuit of profit for it’s own sake is the cause of a myriad of dysfunctions of the commercial system.   And there is ample support for that premise: the misconduct and abuse that occurs on a grand scale is invariably the result of a singular focus on profit (increased revenue and decreased expenses) to the exclusion of all other concerns.

Put in its proper perspective, money is simply a tool used to store and transfer value, and this it follows that the creation of profit is merely a byproduct of creating more value than was consumed in the act of creation, and this in turn becomes the premise for a healthier and more productive outcome, and one which was at the onset the purpose of most commercial undertakings.

Wealth, a temporary incarnation that is derived from profit, is then a representation of the creation of value: those who have wealth have earned it by contributing value for which they have been compensated by the beneficiaries of their undertaking.   And in this sense, wealth is not dysfunctional, nor detrimental in the societal sense.  It is, in smaller words, an indication of having done good, and of having created more benefit for others than one has consumed for oneself.

In this sense, profit is a byproduct of the value that has been created: the firm does not generate a profit by doing nothing else, but finds itself profitable by virtue of the value-creating operations it has established and perpetuated.

Or at least, this is a possible route to wealth, the alternate being to take value without providing greater value in return, which can only be successful in the short term because it depends on other stakeholders to voluntarily participate in an exchange that is to their detriment.   But once such an operation has exhausted the supply of ignorance that would lead another party to agree to such an exchange, it cannot perpetuate.

And it’s in this sense that an individual or organization that seeks profit for the sake of profit is generally successful for a short amount of time – unless it accidentally ends up creating greater value than it consumes, which is possible though highly unlikely.