Consumer Components of Product Value
Written on 09 May 2023
by Ruth Fisher, PhD
Think about the last time you bought, say, lunch, and how you chose among your available options. You probably thought about the important features, price, convenience, taste, and/or healthiness, and which choice would provide the features you wanted. Maybe you decided on some fast-food joint around the corner – McDonald’s or Taco Bell, that was quick and cheap. Or perhaps you chose a sandwich from the deli in town, where you had to travel a bit and stand in line, but the less-moderately-priced corned beef on rye with spicy mustard was well worth the wait. Or maybe you had Door Dash deliver a nice, healthy, protein-packed ahi poke bowl from the poke bar down the street.
While the mundane experience of having lunch probably seemed pretty straightforward, I propose that the meal you consumed involved four distinct components of value (see Figure 1): a purchase component, a consumption component, an effects component, and a community component.
Why do we care about these different components of consumer value? We care because they provide specific targets for enhancing the value to consumers of using a particular product or service. By providing consumers with more value, sellers induce greater consumer willingness-to-pay and/or greater consumer loyalty, both of which increase producer profitability.
I define the purchase component of value involved with buying lunch as including all aspects of the experience associated with selecting, purchasing, and receiving your meal.
The value associated with the purchase component of most products is greater when you have more options, less uncertainty, and fewer time lags. The purchase component of value for most products has increased dramatically over time, as technological advancements have increased consumers’ options and decreased both the uncertainty and the time lags between ordering and receipt of final products.
For almost every product we’d like to consume, we have more affordable options today than ever before. As the repository of knowledge, skills, and technology have increased, and supply chains have integrated globally, the availability of everyday products and services have proliferated to fill our every want and need.
Take food as an example. Starting in the post-WWII years, the introduction of new technologies into the agricultural and food processing sectors led to a dramatic decrease in the relative price of food over time. Personal expenditures on food decreased from 21% of income in 1929 to 7% of income in 2022. Not only did food become cheaper and more plentiful over time, but prepared foods have become increasingly available in vending machines, restaurants, grocery stores, and convenience stores.
Of course, restaurant and delivery options have been readily available for most people since at least the early 1900s. The 1920s “marked the birth of the modern restaurant industry” and also the debut of restaurant delivery, initiated by Chinese restaurants. Yet, it was technological advancements that really fueled the takeoff in food delivery: The increasing availability of cars during the 1960s expanded delivery possibilities, enabling Domino’s pizza to offer it’s 30-minute delivery guarantee. More recently, however, food options have mushroomed with the advent of internet-enabled same-day delivery services. These services were tried, but failed, during the dot-com boom days, but then were resurrected again around 2014, this time with more success. Earlier efforts failed due to the last mile problem, which was finally overcome only after significant advances in logistics technologies (for a more detailed analysis, see my blog Playing the Same-Day Delivery Game).
In today’s society, options abound.
The uncertainty associated with purchasing a product is the risk that the product will not perform as expected.
Generally speaking, people tend to already have expectations about the product they want to buy, and the seller’s job is to meet (or exceed) those expectations. And in most cases, the products we buy generally meet our expectations. At times, the products we buy work somewhat, just not as well as we had hoped, but the worst that generally happens is we throw out a product that doesn’t satisfy us at all.
In some cases, however, defective products actually harm us. Defective products may cause physical injury, for example, faulty wiring may cause electrocution or tainted food may cause food poisoning. Alternatively, some defective products can cause significant collateral damage, such as if a defective space heater causes a fire that burns a house down.
Obviously, if you end up wasting your money if and when a product does not live up to expectations, then the cost of uncertainty is greater when the product is more expensive. Furthermore, product uncertainty can be even more costly if a product fail involves actual harm or collateral damage.
The magnitude and costs of product uncertainty have generally decreased over time via three separate routes. First, governments have decreased uncertainty by imposing various regulations on businesses, including product safety standards, other minimum product quality standards, and product liability laws. Second, manufacturers have reduced the risk of uncertainty to buyers by voluntarily adopting such offerings as try-before-you-buy options, money-back guarantees, product warranties, and easy return policies. Third, independent organizations have emerged to certify product quality (e.g., organic certification, Better Business Bureau, Consumer Reports). And more recently, the advent of the internet and the evolution of internet technologies – namely product ratings and review systems – have had a large impact on further decreasing the uncertainty associated with buying new products.
During the 1970s, 1980s and 1990s, Columbia House sold music (cassettes and CDs) through the mail. The company used to mail out music catalogues to customers. Customers would return order forms to the company through the mail, then wait 6 – 8 weeks for shipping and handling before finally receiving their new albums. During this same era, food delivery options were limited, usually to a handful of restaurants, including, of course, Domino’s Pizza and Chinese food. Today’s next-day delivery services for most products are a far cry from those 6 – 8 week shipping delays, as are today’s long lists of menu options for food delivery.
Not only have time lags in delivery all but disappeared, but so too have time lags in processing transactions. For example, credit cards are now swiped and processed instantly. In contrast, during the Columbia House era, credit cards were processed by using a slide machine to imprint a copy of the customer’s card onto duplicate hardcopy forms. Businesses would keep a copy of the form for their records and hand deliver a separate copy to the bank for processing, where the vendors’ accounts would eventually be credited, perhaps a day or two later. Contrast this previous experience to Amazon’s currently available, “1-click” purchase option: What a difference!
Even time lags in manufacturing have been reduced, by digitizing and automating both ordering and manufacturing processes.
In short, technological advances have all-but-eliminated time lags in today’s world associated with ordering and receiving products.
I define the consumption component of value involved with lunch to include all aspects of the experience associated with the setting, preparation and consumption of your meal. It includes, for example, the ambience in the room, the company with whom you’re dining, the presentation of the food, and any procedures or rituals you may undertake associated with consuming your meal.
Years ago, I was working on a project involving synthetic wine corks. The issue was that most real cork comes from cork trees grown in Spain. At the time, there was a shortage in cork, so cork prices were high. There was also the problem of corks disintegrating into wine bottles, corks leaking, and corked wine. Several different companies had developed synthetic wine corks as an alternative to natural cork that overcame these problems. Yet, another obvious alternative available at the time to using real or synthetic corks was bottle caps. Bottle caps are cheap and easy to make, easy to put on the bottle, and don’t leak or degrade or ruin the wine. Nonetheless, none of the higher-class wineries would even consider bottle caps. It turns out that a very important part of the wine consumption experience includes the ritual associated with uncorking the wine and smelling the cork. Many people also collect corks as souvenirs. Not only does the use of bottle caps eliminate this whole value component, but bottle caps also don’t provide the same elegance as corks.
Just as the ritualized selection of wine, admiration of the label, uncorking, and tasting before use contribute to the value of consuming wine, so too do the setting, preparation, and process associated with consuming many other products contribute to their value.
Over the years, there has been an increasing proliferation of companies offering consumption experiences, either as travel destinations tours or jaunts that take place in remote locations, or as products/services used by customers in their homes or offices to enhance existing experiences. Entertainment and home theater systems are a great example, where introduction of Dolby Digital and Dolby Surround Sound in the 1970s provides an earlier example, while virtual reality systems provide a more recent example. I think that augmented reality, which is still currently in the early stages of development, has the potential to offer some valuable enhancements to consumption experiences in coming years.
I define the effects component of value involved with lunch as including all outcomes or effects realized by consuming your meal. It includes any tangible or intangible, personal (e.g., physical, emotional, or cognitive) or social (e.g., status/reputational or externalities) effects associated with consuming lunch.
When we consume a product, we generally think of the private benefits we receive from doing so. A fast food meal provides flavor and satiation. A tasty meal provides a sense of happiness and/or satisfaction and satiation. A healthy meal provides nutrition and satiation.
At the same time, we’re increasingly aware of social effects associated with the products we consume, namely reputational effects (also called conspicuous consumption) for ourselves. When we eat at the hot, new restaurant, we signal ourselves as being a joiner, and perhaps also as being wealthy.
Furthermore, as the world becomes more populated in general, and more densely populated in particular, increasing numbers of the products we consume create externalities, that is, social effects imposed on others. Some of the more common externalities include pollutant emissions (not just greenhouse gases, but noise and odor emissions as well), higher prices due to resource depletion, and environmental impacts associated with waste generation.
Finally, the last component of value involved with your selection among lunch options includes what I define as the community value component associated with consuming your lunch of choice. Perhaps you dined at your regular lunch spot, where you know the staff and often see friends eating there too. Or perhaps you chose a hot new trendy place to dine at, or an exclusive, members’ only dining club. The value you received from having lunch with a group of people with whom you feel a sense of belonging, identity, or connection is the community value component of your meal.
Communities are both feelings and sets of relationships among people that have emerged to meet common needs. Pioneering researchers on the subject, David McMillan and David Chavis, propose four main elements of communities:
- Membership is the feeling of acceptance, belonging, and emotional safety.
- Shared emotional connection is the sense of members’ shared histories and/or experiences.
- Influence is the sense that individuals matter and make a difference to the group.
- Integration is the sense that individuals’ needs will be met by the group.
Effects and Community Overlap
There’s a clear overlap between the effects and the community components of value when it comes to social elements of consumption. For example, you may choose to eat healthy food because it’s, well, healthy for you. That’s a private component of value – only you realize the nutritional benefits associated with eating healthy foods. At the same time, however, there may be social components of value associated with your choice of healthy food that may fall into either the effects and/or the community components of value. More specifically, you may buy your food at Whole Foods, which earns you a reputation both for being healthy, if not also for having a sizable enough income as to be able to afford shopping at Whole Foods. I would classify these reputational effects as being part of the effects component of consumption – it’s what results from eating healthy food. At the same time, if you also identify with the health and wellness community, and your consumption of healthy food reflects on your identity as being part of this community, then the value you generate from buying and consuming healthy food also falls into the community component of value.
Purchase, Consumption and Community Overlap
There may also an overlap between the purchase, consumption and community components of value. This will occur when the purchasing process is part of the consumption experience, which usually also involves a community element. For example, wine connoisseurs often tour vineyards and/or attend wine-tasting events, after which they buy wine from the vintners with whom they have just engaged. Part of the subsequent experience of consuming the associated wine involves reliving the tours and tasting experiences, together with the personal interactions with the vintners. Of course, these wine drinkers also generally consider themselves part of the wine community. More generally, these same types of experiences wine drinkers enjoy are also experienced by people who shop in farmers markets, arts and crafts fairs, swap meets, etc.
Purchase, Consumption and Effects Overlap
Another area of potential overlap is between the purchase, consumption, and effects components of value. Consider two different scenarios:
- Suppose you regularly eat at McDonald’s. When you order French fries, sometimes you get them fresh out of the fryer, in which case they’re hot and crispy, while other times they’ve been sitting under the heat lamps for a while, in which case they’re only warm, not hot, and they’re more soggy than crisp.
- Suppose you’ve never had French fries before, you go to McDonald’s, and you see them on the menu. You might order them, but you don’t know what French fries taste like. Sometimes the fries are served fresh out of the fryer, but in other cases they’re not.
In the first scenario there’s uncertainty in the purchase component of value. If you get the fries without knowing for sure whether or not they’re fresh, then the purchase component of value is less than it would have been had you known for sure one way or the other. As for the consumption component, if the fries are fresh, you will savor the process of biting into the crispy fries and enjoy the contrast in mouth feel between the crispy out layer and the fluffy insides. If the fries are soggy, on the other hand, the consumption experience is much less – if at all – enjoyable, and the sense of satisfaction – the effects component of value – is also much lower than in the case when the fries are fresh.
In this case, then, having information before you buy as to whether or not the fries you order will be fresh out of the fryer would increase the purchase component of value. You would know for sure whether or not to get the fries. Even more valuable, however, would be a guarantee that all fries are fresh out of the fryer. In other words, if McDonald’s could guarantee customers that all fries are fresh of out the fryer, it would significantly increase the value to customers of ordering fries.
Taking it a step further, with some products the realized effects differ between products of different quality. For example, suppose that soggy fries might somehow make you sick, but fresh fries won’t. In this case the value of knowing for sure whether fries will be fresh or soggy will go much further in increasing the purchase and effects components of value.
In the second scenario, you don’t know what to expect. If you order the fries and they’re soggy, you get a low consumption value (low enjoyment and mouth feel) and a low effects value (low satisfaction). If, however, you get fresh fries and they end up knocking your socks off, then the value of being delighted in both consumption and effects may be quite high. If the fries are generally fresh, then having a try-before-you-buy may or may not be especially valuable in this case. Letting people try the fresh fries would increase the number of purchases, but being delighted in consumption and effects has a greater value than merely being satisfied.
Continuing on with the second case, perhaps the worst thing McDonald’s could do is to represent fries as being the greatest food experience in the world, but then deliver soggy fries. In this case, it would be setting expectations that don’t live up to the actual experience, which can cause significant stress for consumers. This results in very low consumption and effects values. McDonald’s may get the customer to purchase the fries, but it will most likely be a one-time purchase, since the customer will likely not return.
Hence the adage, “under-promise and over-deliver.”