Commodity Buyers

Commodity buyers have no emotional attachment to your products and services. You are simply convenient to purchase from or price competitive.  These customers are often fickle and cannot be trusted to buy from you again unless you move them up a level. This is a risky low margin business space.

Value Conscious Buyers

If customers perceive that you provide real value, that you help them get their job done or make their life better, then you can have a stronger connection with them.  These customers may be prepared to pay more, but are looking for any of: better performance, more features, great support, great design, reliability, etc.  They will come back if they are well treated and as a result, you can derive higher margins from these sales. Most products live in this space. You are at risk of disruptive strategies and new products and marketing campaigns at this level.

Emotional Buyers

What you really want are customers who are emotionally attached to your products or your brand.  Buying becomes slightly irrational at this level.  You start to see strong loyalty, product upgrading, high levels of retention and a willingness for customers to spread the word to the point of being evangelical.  Apple has a large number of customers who fit this description. Brand conscious producers work hard to remain current and recognizable here, often pasting their brand all over the product for maximum visibility.

Social Capital Buyers

The Holy Grail is when customers believe that they derive social capital by virtue of owning or using your products.  Think Ferrari, Gucci and Apple.  To have the “right” product is to be fashionable, connected, and sometimes beautiful.  When your products achieve this level of value, you can charge just about anything for them and, so long as true value exists, your customers become completely irrational about their purchase decision.

It is a Pyramid

This is true in two ways; First each level demands that the conditions of the lower levels are fulfilled. For example a low value product is unlikely to develop emotional attachment from many customers. Secondly, the number of customers who exist at each level tends to decline – there aren’t that many Ferraris on the road, and frankly their limited numbers contribute to the mystique that elevates them to the highest level of the pyramid.

Case study: Apple iPhone Fanatics

A great example of this process at work is in the smart phone and tablet markets. There are lots of cheap phones available, but just go ahead and try to press one of these into the hands of your teenagers – Level 1 is a fleeting transitory experience.

If you have cash, you will be looking for features. Some of you may have bought into the Apple environment (some aggressively distance themselves from it). Those in the Apple world accept quite high prices for technology that is slightly “better”, certainly different and clean and well designed – Level 2 value perceptions are at work here.

Apple is like Hotel California, in that once you enter it is difficult to retreat and you find yourself using a range of complementary and interconnected products, often exclusively. This is, of course, no accident – welcome to level 3. Your next purchase will be an Apple product.

And then, there are the people who line up for a couple of days and nights on a sidewalk just to be the proud owners of the latest iPhone. While each new iPhone is objectively not much of an evolution relative to its immediate predecessors, objectivity was thrown out the window long ago and this phone is the latest thing. Owning it carries substantial social capital. Fanatical ownership of iPhones has propelled Apple revenues and profits to magical highs by leveraging sales throughout the business – hardware, software and the sale of third party intellectual property via iTunes.

Love them or leave them, you have to be impressed with Apple’s ability to create an evangelical customer base.

UPDATE March 2015: Check out the new Apple iWatch range – notice the $10,000 version that does all of the same things that the $400 one does? Now who would buy that (no gold stars for figuring that out). Also note that this is another case of three flavours of a product, driving you towards the middle. Also, if you own the lower range models, you know that you have the same functionality as the golder than gold (yes apparently it is a special formulation of gold) version. Finally, given the market potential, it is interesting to note that Apple must create high cost / high value products if there is to be any noticeable impact on their revenues.  All round, this product launch is a fascinating example of brand awareness at work. This exposed and wearable item is designed to stimulate the desire to gain social status – it operates at the very top of the pyramid, particularly the gold “Watch Edition”. Time will tell if this product sells.

Michael Malone in the Wall Street Journal wrote “Maybe in a few months the dedicated Macolytes will be camping outside Apple stores, hoping to be the first customers to emerge from the store waving white boxes at waiting news cameras.”  “Macolytes” – I love it.

What is your strategy?

We can work with you to assess customer value perceptions across sub-markets and product lines and brands.  In conjunction with other strategic planning and facilitation tools, our goal is to move your customers up the value pyramid, and to help you to keep them there.

Other Related Models

As noted above, consultants and strategy wonks really seem to like triangles. There are a number of triangular brand/product/attachment models with 4 or 5 levels that can be loosely correlated. Each serves a purpose, and we use them (or derivatives of them) as necessary for each unique client situation.

The models that we like include: The Brand Pyramid, Kotler and Keller’s Five Product Levels, Keller’s Brand Equity Model and The Hierarchy of Customer Value (described above). As a bonus for strategy geeks, this table tries to relate them …