Blind Spot. Nathan Shedroff
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Media, for instance, has determined that companies that consistently offer these types of value are, on average, valued significantly higher by the markets. Because of this, and because they offer so much greater benefits to customers, which leads to sustainable competitive advantage, these are thought of as the source of premium value.
The third kind of value is emotional value. Everyone acknowledges that emotions exist, yet some in business are still unable to see their impact on customer decisions. A “just-the-facts-ma’am” approach doesn’t allow room for emotions to enter the equation. Yet, emotions are not only deeper in the relationships between customers and companies (and between individuals, too), but they’re also very much a type of value that gets exchanged, even if they feel invisible. It’s also easy to explain: consumers are willing to pay more for those experiences that provide them with the emotions they seek. That’s all there is to it, but it flies in the face of traditionalists who insist that “people won’t pay more for things than they have to.”
Of course, every good salesperson knows that they’re selling on the basis of emotions more than on price or performance. It’s why consumers end up with a choice that’s often over their budget or doesn’t meet all of the functional needs they’ve specified. What drives decisions, in these cases, is that the choice makes the buyer feel greater, younger, happier, thinner, more accomplished, sexier—something. That’s incredibly powerful and starts to explain the discrepancy between the book value of a company (the simple tally of its assets and liabilities) and its brand value (which is usually many times higher). This isn’t a nefarious thing, by the way. We’re usually after satisfaction more than features or price, in the first place.
Contrary to being irrational, emotions often aren’t. You may not have realized you had a deep need to feel younger, more active, more successful, but if you respond positively to offerings that make you feel those things, that’s a pretty rational response. The difference is that the decision drivers, at this stage, are no longer so easy to spot, can’t be easily defined, and can’t be easily measured quantitatively. Because they’re not measured, often management is blind to them. The result is huge missed opportunities that are never even seen.
The fourth type of value is identity value, and this governs decisions in terms of what consumers feel fits who they are. Some people are Nike folks; others Adidas; still others identify with Puma or New Balance or Lululemon. Some come from cultural backgrounds that instruct them to only purchase brands that will advance their cultural communities or causes.
Even those who eschew brands react on this level. It may not be healthy to align a personal identity with brands—or construct self-images and identities from brands—but consumers do. They gravitate to things that complement who they feel they are and align with personal values. Like all premium types of value, this decision driver often acts unconsciously and, because humans don’t change their sense of self often, it’s even more powerful and stable than emotional value. For example, if you’re a conservative, a liberal, an agnostic, a Canadian, a Yankee’s fan, or a fanboy of anything (in short, anything you put after “I am a…”), this particular type of value lives in this space.
Whereas many business people recognize that identity value exists, they often manage it in a haphazard way because they can’t easily quantitatively measure its importance, as they can with price and performance. Frequently, they hand off its management to the marketing and advertising folks, who are given at least a bit of a pass on justifying what they do on quantitative grounds. The attitude seems to be, “Well, we can’t really measure this, but we know it matters, so let’s just let the brand people do their thing and hope it pays off.” The blind spot here is even more significant, and the lack of rigor in addressing it can be deeply disconcerting for anyone who has to answer for investment choices.
Finally, there’s meaningful value, which transcends the other types of premium value in significance to customers. It is the deepest, most stable value that gets exchanged between people. In the past, it was mostly exchanged between individuals or between people and institutions like churches or government. Now, however, corporations and organizations of all types play this role in daily life. At this level, it’s not so much about who you are but about how you see the world around you. This is governed by 15 core meanings (see Chapter 7, “Discovering,” for an explanation of core meanings).
People’s core meanings drive decisions about who they’re friends with, what jobs they’ll take, what they buy, and what they read, watch, and play. Whether you see the world as a scary, terrible, dangerous, wondrous, friendly, or hilarious place, that belief lives at this level and when you can surround yourself with people and things that reinforce this view, you’re more satisfied and, as a consumer, willing to pay a lot more. Prius owners and survivalists, alike, are driven by different core meanings at this level.
Premium Value Is Real Value
While it’s more difficult to measure and it’s not a traditional business approach, premium value is very real and definitely valuable. If they make no place for it, business people are actively blinding themselves to the highest value there is in the market.
Not everyone pays more for premium value in everything they buy. Most have certain categories in which these types of value mean more to them—and some they couldn’t care less about—for example, Porsche and Cartier, Hilton and Nike, Apple and Whole Foods.
These, of course, are generalizations. But some people care deeply about the food they eat; others just consider it food. Some give great care to the clothes, accessories, hair and makeup they put on; others eschew these for more generic choices. The point is that your customers engage on premium levels for many, but not all, things, and it’s your job to understand which.
All of the above examples are evidence that premium value exists. It’s often difficult to tease the five values apart, in the wild, since all five are active at all times (potentially). And all are part of what makes a relationship engaging, attractive, and valuable. No company that wowed investors with huge valuations on an IPO or sale did so on the basis of functional and financial value alone. In fact, for most companies, the more premium value you generate, the bigger the share it has of your overall value. If you’re innovating to drive growth and value in a company, the best kind to focus on is premium value. And, you can’t get there focusing only on features and price.
There are rare opportunities to “see” this value distinctly when a company goes public or is acquired by, or merges with, another. At these moments, the balance and income statements of a company are distinctly different before and after the sale. For example, when Instagram was purchased by Facebook in April 2012, the “books” said that Instagram (then only 13 people) was worth around $86 million. This represented their total assets (including a $50 million investment the week prior to purchase).
The company was “valued” at $500 million before the sale, but this wasn’t a real number, just a guess, based on past valuations of similar companies. According to the book, if the company had to shut down and sell everything off, it was only worth that $86 million.
But Facebook bought Instagram for $1.1 billion! That’s a huge difference! Why did Facebook pay almost 13 times that $86 million figure? Where did that value exist in the company’s financial statements? It was even double the amount that Instagram’s investors guessed the company was worth.
We contend that the extra $1 billion that Instagram received in the sale was the result of the premium value it had built. Before the sale, this extra billion dollars didn’t appear to exist and wasn’t tracked, nor was it trackable. The day after the sale was final, however, that extra $1 billion was very real and had to be put into the balance sheet somewhere—and there’s a special catch-all cell just for these things. It’s called “goodwill” and it’s a place to shove the extra money companies make when they’re purchased or offer their IPO.
How could $1 billion go missing? Or how could it not be visible one day, but very