I had an economics professor who only drove old, beat-up clunkers. He bragged about how little he paid for his cars. He drove them until the wheels fell off, then sold them for scrap and repeated the process. His rationale made perfect sense: a car is simply a means to an end—transportation. Its value is the utility (or usefulness) of getting you from point A to point B as cheaply as possible. The concept of utility is so rational, isn’t it?
Here’s the thing: We lived in Florida. It was hot. His cars never had air-conditioning and they all burned oil. My economics professor was usually a sweaty, smelly mess by the time he arrived at school, if he arrived at all. Old clunkers are also unreliable. On a number of occasions, he couldn’t make it to work because his car broke down.
That’s where he lost me. A car is more than transportation. Frankly, I find air-conditioning useful and reliability a must. The transportation utility of a car is a given, isn’t it? Other factors to consider when buying a car are comfort, reliability, performance, safety, fuel economy, design/aesthetics and affordability. And, then there is the very irrational factor of brand preference or loyalty.
Brands often reflect our personal tastes and values. Are you a loyal Honda owner or do you prefer Toyota? What about Ford versus Chevy, or BMW versus Mercedes? As it turns out we are pretty loyal to our preferred car brand. According to a J.D. Power and Associates study on repeat purchases within a brand, the average retention rate is 49%. So, almost half the time, we buy the same brand as our previous car. Where’s our spirit of adventure?
More than almost any other purchase or possession, a car reflects the personality of its owner. Our car reflects an image that we are trying to project to the outside world. What image are you trying to project? Are you practical and safe or flashy and obsessed with style? Are you projecting financial success? Are you economical? Are you rugged? Are you environmentally friendly? Are you a “good” mom or dad? Or, are you an economics professor making a point about the value of utility?
The utility of transportation is obviously a decision factor when buying a vehicle, but it is not the key decision factor. Both a Lamborghini and a Volvo can get you from point A to point B. My wife would find very little value in a $400,000 Lamborghini Aventador, while I dream of owning one. So, why would someone pay a premium for a high-end automobile brand versus a perfectly good Toyota Camry (the best selling car in the United States)?
The reason is the concept of value is not universal. We value different things. And, our value system is typically wrapped up in our self-identity.
Recently, a young entrepreneur asked me to help him market his new technology. I asked, “Who is your target market?” “Everyone,” he replied. The problem is everyone is not a target market specifically because we all value different things. He had the genesis of a wonderful new technology, but determining a precise target customer would enable him to tweak the product, pricing, customer experience and communications to meet their unique wants and needs. That’s the value proposition.
Back to my car example. Automobile manufacturers are not selling transportation, they are selling a value proposition: Lamborghini = Fast; Volvo = Safe; Honda = Reliable; Ford Trucks = Tough. You get the idea. While speed, comfort, prestige, safety, reliability, fuel economy and style are all factors that go into the car-buying decision, it really depends on which factor their target customer values most. The auto industry has gotten very adept at marketing their makes and models for very specific markets. What do you drive? How does it reflect your self-identity?
The same rule applies to all decision-making. That’s why my entrepreneurial friend needs to identify a specific target for his technology because his ideal customer will help him focus on the right decision factor (aka value proposition).
Remember, the utility of a product or service is only one variable in the equation that determines value. What are the other factors that make your offering unique?
I wonder if my old economics professor is still driving an old clunker or if he began to value the benefits of a good air conditioner? Smell you later Doctor!
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