How People Perceive Value

And Why It Matters So Much for Your Product

René Magritte

Value for user (as opposed to value of a user) is a critically important product concept. Arguably it’s at the bottom of product/market fit, product design, growth, pricing, marketing, sales, customer satisfaction… Few things help products and services succeed more than injecting them with lots and lots of value. Getting value right makes everything else easier — the product can be buggy (think Windows 3.0), user experience can suck (Facebook’s first mobile app iterations), your marketing budget may be zero (Google search in its early days) and yet people will find your product, use it and love it. On the flip side if you can’t demonstrate good value early and clearly, no one will stick around to try your product a second time.

We intuitively know what value is, but finding a formal definition is surprisingly tricky. Economists, marketeers and designers all came up with somewhat different takes on it. I’ll use a very non-formal definition:

Value is the property we assign to a thing — a product, a service, a person, an experience, that indicates how important, worthwhile or beneficial we think it is for us.

Also this:

Perceived values and perceived costs are the main tools we use to prioritize and choose between the many things that are vying for our limited resources.

How We Perceive Value

“This is not a pipe.” — The Treachery of Images / René Magritte

One obvious thing to say about value is that it is not a objective property, say like weight or color. Different people may assign radically different values to the same thing. Hence we’re talking about Perceived Value — what we perceive the thing to be worth. Here’s how it works (note: lots of this is loosely adapted from Holbrook, the leading researcher of user value. I should say that I’m just touching on the main points here):

  • Value is subjective — we assign value based on our values, preferences, beliefs and social norms. For example an audiophile may consider a $10,000 state-of-the-art hifi system good value, while her twin sister that has the same demographics and upbringing but not the audio sensibilities, may find a $100 portable bluetooth speaker over the top.
  • Value is relative to cost — Since our ape ancestor that went for the low-hanging fruit, we are all about maximizing bang-for-the-buck. Nothing is truly free — we can pay with money or with other scarce resources — time, effort, attention, mental load, physical or logical space, bandwidth, battery life… Cost can take many forms — if your product is missing a few features that the user came to expect, that’s a cost. If it’s a bit harder to use or it makes the user think, that’s a cost too. There’s also usually a switchover cost from what the user is using now. Users sum up the costs, but it’s a weighted sum — some things are more important than others. John T. Gourville pointed out, that product teams tend to underestimate the cost and overestimate the value of the new product, while users do the opposite.
  • Value is relative to alternatives — before buying an electric car I’ll consider traditional gasoline/diesel car. As I compare the two options I will not do a full feature-by-feature analysis, but rather focus on to a few salient points that matter to me: the electric car is better for the environment and more economical, but the gasoline car uses tried-and-tested technology and does not give me charge anxiety. Again my preferences and values will determine how I weigh those.
  • Value is contextual — the environment and circumstances of the user can play an important role in value assignment. A bicycle is more likely to be considered high-value as a means of commuting in Amsterdam than say in Anchorage. Part of user context is social norms. If I work in a company where suits are expected I may value a pair of jeans less.
  • Value assignment is often fast and intuitive — when we evaluate something we rarely do a deliberate, thoughtful and thorough analysis. In typical human fashion we revert to fast, shallow thinking — narrow-framing the question, or replacing it with a simpler question like which option feels better. The takeaway is that even if you genuinely deliver tremendous value, you need to make this easily understandable with little or no need for deep, slow thinkning.
  • Value changes over the lifetime of using the product — the first evaluation often happens even before the user used the product, purely based on available info and hearsay, so users may come primed with an expectation of value (high or low), even a value fantasy. With first use, we form a more realistic, if still somewhat superficial, opinion which may be in contrast with the expectation. Most users will not find the cost-to-value tradeoff good enough and given the choice will opt out. Those that do see enough value may buy, or start using, and then with continuous use will shape a more informed perception of value. As the user becomes more proficient and invested, value often grows, sometimes to the point that we become dependent on the product. But if the need goes away or a superior alternative shows up, value may drop sharply. After stopping to use the product we take away a lasting value perception that is somewhat biased by subjective memory.

The components of value

Personal Values / René Magritte

Value can be broken into on three main components. The composite of the three gives total value, but as always it’s weighted by users’ personal biases. As you read this imagine a 3-dimensional axis and think how your product stacks up on each axis.

  • Functional value — Functional value refers to the utility the product gives us in completing specific tasks. This is the most easy to understand type of value — whether you need to get from point A to point B, find information online or furnish an apartment, there are products and services out there that will help you get the job done, and they compete on engineering-like metrics: functionality, efficiency, durability, robustness… Being techies we spend most of our time building and optimizing functional value, but it’s by no means the only type of value, or even the most important one.
  • Social value — We are social animals and care deeply (even if not always consciously) about our place in the social ladder and what others think about us. Social value refers to the socially-oriented benefits we gain from using or owning a product — for example cultivating ties and networks, status and prestige. Social value is often not obvious or even fully conscious, but it can play an important role in product choice. For example, I may tell myself that I chose to buy a $12,000 Rolex because I care about accuracy and reliability (functional traits), but in fact a $30 digital watch would be far more accurate, reliable and functional. The Rolex, however, is loaded with social value. In the simplest terms it makes me look good; first in the literal sense — making me look more elegant and attractive, a definite social benefit. Second it helps me project a certain image — wealth, sense of style, life preferences, which in turn makes me look like I belong in the upper echelons of society. The $30 digital watch, on the other hand, will send all the wrong signals for those same reasons and thus detract social value. Buyers of luxury watches seem to find the $11,970 premium worthwhile. The takeaway is that making our users look good is a major win, yet we almost never think of our products in these terms. 
    As a more elaborate example, social networks, and to a large degree messaging apps, go much further in providing social value. They allow us to grow our social graphs manyfold and to cultivate ties with low effort. All it takes is a friend request and the occasional positive comment or Like. Massively cheaper compared to the old way of doing things — phones calls, emails, birthday cards. On the receiving end these small and cheap tokens of attention do the work. We get reassurance that people remember us and care, and that our place in society is secure. Clear social value again. There are many other subtle social mechanisms at play, each with it’s own value — surveying the social landscape and learning who’s connected with whom and how it affects us, comparing ourselves to others, learning what’s in fashion and adopting it, staying in the loop on social events and much more. Of course there’s the all important business of making us look good to others by showcasing the version of ourselves that we wish to project. With all this value, no wonder we spend so much time using social services, especially in our teen years when we’re most sensitive to social status.
  • Self / Emotional / Psychological value — not all of our non-functional needs are about other people. We have intrinsic needs that are generally, though not always, about making us feel good. Firstly there’s good old fun. If it was up to us we’d spend a lot more time playing Candy Crush Saga, lying on the beach, reading a good thriller or watching TV. There’s no real functional value in these activities, and while they may carry social value, the main purpose is to gratify ourselves, not others. There are massive industries built around this type of value — gaming, media, entertainment, travel, but any product that manages to inject fun into its workings stands to gain value. Other internal needs include: a sense of self worth and meaning, growth, beauty, spirituality, and many more. Going back to the watch example, I definitely may derive selfish pleasure from its beauty and mechanical elegance, irrespective of what others think. The watch also sends me the same implicit signals that it sends to my social circle, enhancing my sense of self worth and reassuring me that I’m doing well. 
    Not everything we value is strictly about us. There are intrinsic needs to do with the greater good: protecting the environment, helping those who are less fortunate, saving endangered species… All things being equal, a product that is environmentally friendly, was not tested on animals or is helping children at risk is of higher value than one that doesn’t (and it gives the product team a higher sense of meaning and value as well).

Getting Value Wrong (We All Do It)

Collective invention / René Magritte

Imagine that you just launched that highly anticipated new app or product feature after twelve months of hard work. Against all odds user reaction is underwhelming — feedback amounts to “Meh”, retention is low, usage and growth are abysmal, revenue non-existent. Yes, low product-market-fit rears its ugly head. To put this in user value terms, most likely one of the following has happened:

  • Not enough value — the product is not successful in delivering a sufficiently good mix of Functional, Social and/or Self values (simplified version: doesn’t help users get something important done, doesn’t make them look good, doesn’t make them feel good). It’s possible that the product is flawed, but more often than not you’re simply addressing a need that doesn’t exist. We tend to overestimate the benefits our products bring and the severity of the problems they solve. So much so that stopping to ask real users seems unnecessary. Unfortunately fixing value post-launch is much harder — you’re under the gun with a ticking clock. It’s far better to get a deep understanding of values and costs as early as possible in the project. User-centered design and LEAN methodology are all about helping you do this.
  • Not enough value compared to cost — we are generally averse to losses. Costs, be they money, time, effort, mental load, etc. are perceived as losses. The gains (value) should therefore sufficiently outweigh the losses (costs). Again, product developers who are usually not the end users struggle to foresee what users will find prohibitively costly. For example users in the emerging markets may switch off app updates on their phones because of the perceived cost in data usage and memory. I’ve seen people refusing to upgrade to the latest version of a product because they found the new color scheme too distracting. The perceived loss of concentration was a cost they didn’t wish to pay. To fix this you can lower the cost (lowering the price, simplifying the product, addressing the thornier issues, making switch-over easier), add more value, or both.
  • Not enough value compared to alternatives — you’re competing against similar products and also against whatever the user is using now. Even if your product is first-of-a-kind, inertia and fear of the new make us feel that it’s both easier and safer to stay with what we know and understand even if on paper it’s inferior (early adopters are the exception). For example if you’re developing a cheap mini-drone designed to take selfies, you need to compete both with other selfie drones and with selfie-sticks. The latter are likely cheaper, more reliable, simpler to use and better understood. Your drone needs to do something really significant to justify the switch. The difference in functionality doesn’t necessary have to be major, though. For example building a photo sharing app that makes your photos artsy, beautiful with one click and lets you seamlessly publish the result (functional, social and self value) can be a billion dollar venture.
  • The users didn’t understand the value or are “change-averse” — product teams somehow find this explanation the most plausible and spend many cycles building enhancements to “educate users” — teach them how to use the product or explain what’s so great about it. Even worse, we try to nag users into using the product again in the hope that the second time will bring enlightenment (it’s worse because now your product detracts value). Unfortunately these solutions very rarely work as the real problem is almost always one of insufficient value. That’s not to say you shouldn’t help users discover the value, but it’s much better to show than to tell. The value should be evident in use from the very first moment, ideally without having to go through a five-step onboarding flow. For example if you’re building a game, make sure that the users are quickly in-game, playing and being entertained. If a particular activity drives high value (e.g one-click photo filters) put it front and center. Another key point is that the last experience often forms the impression (which is why some airlines give you chocolates close to landing), so try to end the experience on a high value note. Again, knowing your product’s key value points will go a long way in helping you build these experiences.

Building for value

René Magritte

There’s a lot to say about how to use value when building products and services, but that’s probably a topic for another blog post, if people are interested. Here are some thoughts in no particular order.

  • Learn early what values and costs users find in your product and how they stack up. These can be quite surprising and unintuitive. The best way to do this in the early stages of the product is through direct user research and min-viable product iterations. You should then steer your product in the direction of higher value.
  • Find a way to measure perceived value through the lifecycle of of your product and do it continuously. You can get a sense of value indirectly through metrics like satisfaction and price sensitivity, or directly using surveys, interviews, A/B experiments and so on.
  • Understand how value perception changes over time. What people like on day 1, on day 7, day 14 and on day 90. This may have interesting implications for your product, for example you may wish to promote some features or capabilities in later stages of use.
  • Find what perceived values and costs users find in competitor products. This will give you an idea what will get people to switch.
  • Be cognizant of Social and Self values. We’re not thinking of those nearly enough and they can make or break your product.
  • Consider reminding users what value they’re getting in subtle ways. For example some travel sites graphically show that they are scanning and sorting through other travel sites’ offering to find the very best deal. Research shows that this made users appreciate the service more.
  • The most crucial moment to demonstrate high value is at first encounter. Show, don’t tell.
  • Don’t suck more value than you give. We dislike people that are needy and are constantly asking for things. Products and services are no different. Be patient and ask them to do things for you later, after you gave them lots of value.

Looking at the world through the lens of values and costs my sound like standard economics, but as I tried to show, it’s anything but. It’s all about tuning into the distinctly human way we evaluate things: functional, social and self benefits, heuristics and fast thinking, conscious and subconscious biases, all leading to what we perceive to be best bang-for-the-buck. Armed with this knowledge we stand to build better and more relevant products, and acquire satisfied and loyal users.

Mysteries of the horizon / René Magritte

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