13 June 2014

Value Creation through Design Spiced with Behavioral Science: From Functional to Hedonic and the “Tricks of Preferences”

Hans browses around an upscale department store searching for a gift for his wife’s birthday. He looks at this and at that and, after two hours of searching, he finds something that he thinks his wife will like to receive as a gift. The price is a bit “spicy”, but it’s a gift for his wife’s birthday and there is no price for their love and (life) partnership.

Hans buys the gift and goes back home and hides it in a place he knows his wife will not look. (or at least she will not say that she found it before time).

While savouring his evening beer, Hans remembers that during his shopping trip he spotted a nice watch he would like to have. Naturally he doesn’t need a (new) watch. He has two already and he always has his mobile phone with him; in addition he spends most of his day in front of a computer. Hans realizes that, in fact, these days no one really needs a watch. However, he can’t take his mind off that watch. He only got a glimpse of it, but it was enough to realize that it was very beautiful and elegant. If he remembers right, it was the same brand as the watch his grandfather had (too) many years ago, when Hans was only a young boy.

A few days later, Hans is again in the upscale department store and just for his indulgence he goes to the watch shop to take a better look. He remembers seeing a tiny price tag and it was something like “2** Euros”. Hans goes to the shop and asks to see and try on the watch he saw a few days ago. It is truly superb and the sales-lady tells him it has a golden case, but Hans can’t fully hear what she is saying since he is absorbed by the grace and elegance of the watch. He was right. It is the same brand as his grandfather’s watch.

After a few seconds of having the watch on his wrist, Hans takes another look at the price tag. It was almost as he remembered: “2890 Euros” … he only missed one digit the first time. The sales-lady tells him that the case is solid gold and weights 19 grams. For a second, Hans realizes that he has on his wrist a watch that is worth about half of the car he and his wife have. He simply cannot afford it and he thinks that it would be insane to even consider buying it.

He gives the watch back to the sales-lady and, with a bitter smile, tells her that the watch is very beautiful, but way out of his league. She replies that there are other more affordable models and encourages him to take another look at the display. Hans spots another watch that looks similar to the golden one, though not as elegant and gracious, but still very beautiful. He asks to see it. This time Hans is careful and takes a look at the price tag first. It says “198 Euros”. Hans is relieved and tries it on. Although it is not a gold watch, it is still very beautiful and elegant and it looks great on his wrist. Moreover, this one too is the same brand as his grandfather used to have.

Hans, proudly leaves the shop with a new watch that is very beautiful, quite expensive and that he didn’t really need.  

The (not so fictional) story of Hans and the unnecessary watch holds many lessons about value creation and doing business in the XXIst century. Here are some of them:

First, a 200 Euros Watch looks like a bargain when compared to a 3000 Euros one.

Second, we buy things that we don’t need (also) because they hold emotional and or status value.

Third, context is (almost) everything! Glimpsing and getting an elegant watch makes perfect sense in an upscale department store after buying something elegant for your better half. It might not have been so, on a casual Sunday walk in the park.

Fourth, when selling status goods to men, it is better to have ladies who sell.

All of these lessons are grounded in the insights of Behavioral Science.

Established thinking (based on insights from normative Economics) would suggest that only moderately rich and snobbish people would buy expensive watches. However, Hans does not necessarily fits the profile… in fact he doesn’t fit any profile since you don’t really know anything about him.

Market research based on this “established thinking” would have asked several hundred Hanses to say how much they would be willing to pay for a watch… and the huge majority of answers would have been below 200 Euros.

Behavioral Science, however, holds many insights that are not really intuitive
and that go far beyond understanding (and manipulating) the context of purchasing.

Behavioral Science can give insights into creating value that both clients and companies need.

In a world where functionality is incorporated in most goods and services, it is very difficult to create value by being even more functional.

Moreover, Behavioral Science holds several (potential) answers to the question:
“How do we get out of the Price War?”

In a highly commoditized market and with an increasing price sensitive target audience, functionality and (low) price are very important. However, not the entire market is looking only for functionality and not the entire target audience wants only small prices.

Businesses which acknowledge that the quality (functionality) and price battlefield is not the only area of competition, can break the deadlock and generate value for both their customers and themselves.

Just before the end… you should know that a people better remember stories than anything else… this is why I wrote the story of Hans and his new (unnecessary) watch.

Here’s the main lesson you need to learn from Behavioral Science:

First We Feel and only after (if at all) We Think! 

Hurry up! Registration Ends on June 18

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