Given today’s transforming smart home landscape, it’s never been more important to think critically about the perceived value that you deliver to your customers. The technology that drives the connected home is undergoing an unprecedented transformation. Not only is this driving down hardware margins, but it’s pushing increased competition from consumer-tech giants, ISPs, and other trades into the market.
Like many industries that have gone through such evolutions before, this process results in a substantial increase in downward price pressure on products and labor. As a result, you’re being forced to work harder than ever to maintain your market position as a premium and indispensable resource for all things home technology.
At OneVision, we spend a lot of our time thinking about ways to solve this challenge. A key component of the answer lies in a simple graphic I keep pinned next to my desk. It’s called the “Elements of Value Pyramid.” It is the result of a case study performed by the Harvard Business Review (HBR), and it holds some profound insights you can leverage to maintain, and even enhance, your position in our evolving market.
The Value Pyramid
For all of the ways our market is evolving, at the heart of how consumers make purchasing decisions remains a simple and largely unchanged equation: they weigh the perceived value against the asking price. Given the realities of our market outlined above, trying to compete strictly on the price side of this equation is likely a losing proposition. So, the critical question becomes, what can you do to drive an increase in the perceived value you deliver?
Image: "The Elements of Value" via Harvard Business Review
As HBR points out in its write-up, “What consumers truly value...can be difficult to pin down and psychologically complicated.” However, the thesis of HBR’s work, and the basis of its Elements of Value Pyramid, is that “...universal building blocks of value do exist, creating opportunities for companies to improve their performance in current markets”
HBR’s study goes on to identify 30 of these so-called “elements of value.” These 30 elements are then broken down into four distinct categories and placed into a pyramid: functional, emotional, life changing, and social impact (in order from bottom to top). Generally speaking, HBR argues that the more of these elements that your product or service provides a consumer, the more customer loyalty you’ll garner.
Where Do You Sit?
HBR’s article, linked above, is well worth 10 minutes of your time to read in full. However, if you’re looking for the “CliffsNotes” version, here it is. In structuring the value proposition and sales/marketing message around any one of your offerings, ask yourself which category (or categories—ideally it’s more than one) in the pyramid you are appealing to:
•Functional—Elements such as: saves time, simplifies, reduces effort, avoids hassles, reduces cost;
•Emotional—Elements such as: Provides access, reduces anxiety, fun/entertainment, design/aesthetics, nostalgia;
•Life Changing—Elements such as: self-actualization, affiliation/belonging;
•Social Impact—Defined by one element only: Self-transcendence.
Appealing to lower-level elements (i.e. those that fall under the Functional category) should form the foundation of any value proposition. However, alone, this is not enough. Shifting, or perhaps more accurately broadening, your message to include elements on the higher levels is key. While very few companies in our industry will tap into the Social Impact category, elements in the Emotional and Life Changing categories are well within reach given critical thought to your market positioning.
For example, given only cursory thought, a premium service offering might be positioned only to appeal at Functional elements such as avoiding hassle, saving time, or reducing cost. But with a slight shift in thinking, premium services can easily move up the pyramid, appealing to such elements as providing access (e.g. premium Memberships that provide prioritized support) or reducing anxiety (e.g. proactive monitoring to discover issues before they affect your client). This, of course, is only one example. The same thought process of broadening your message to cover multiple layers of the pyramid can be applied to any offering, be it a big project, a design-services agreement, or a multi-tiered service plan offering.
Get in Position
Commanding a premium in the face of today’s growing smart home competition is a demanding task. The amount of downward price pressure from more angles than ever makes trying to compete on price little more than a race to zero. But the good news is that, with some careful thought about how you market your services, you can compete less on the price and more on the perceived value you deliver to your customers. This approach will allow you not only to maintain relevance in the smart home, but to command a premium as an indispensable resource in a market full of increasing options.