Defining Value in 2010: Keeping Current with Changes in Consumer Mindsets

With all the emphasis on providing customers with "value," I asked about 100 attendees at the IFA Convention in February to describe what value meant. The top five answers on the board:

  • Bang for the buck
  • High quality
  • Cheap prices
  • Great service
  • Unique offer

If you analyze that list you see that all of these descriptions are perceptions, not absolute facts.

Marketers try hard to create franchise brand perceptions, e.g., "Better Ingredients. Better Pizza. Papa John's." Marketing tries to influence consumers to form positive opinions that turn into preferences for one brand over another. Then, if the experience with the brand stays positive, you win customer loyalty. This is how great franchises grow.

The key to keeping the customer experience positive is to stay connected to customers as they change. When customer "values" change, the definition of value changes too.

What factors have changed?

Throughout history, there have been events that changed the consumer's mindset. The Great Depression had a long-lasting impact on people of that generation. My Dad had no problem saying the words "We can't afford it." Survival was the mindset. My Mom was always telling us to clean our plates, that there were children starving in China. She thought that was true until she died. Once attitudes about wealth are formed, they are slow to change.

Then came the Second World War--another game-changer. Sugar and gasoline were rationed. Everyone was making sacrifices. Eighteen- and 19-year-old boys went off to war. Those who survived came home men. Many women, for the first time, entered the workplace. When the war ended, Rosie the Riveter went back home and with her ex-soldier husband began the baby boom. Key values were sacrifice and prepare for the future.

The first president of a new generation was elected in 1960. By this time the postwar boom had been in full swing. We had color TVs and 2-car garages and fashion ruled the White House. The affluent society was on the rise. Boomers were coming into their teens and 20s, and there were lots of them with significant disposable income. From the '60s until the end of the 20th century, we saw the amazing growth of franchise businesses, including the rise of the franchisee. We had, for the most part, a time of plenty. Things will always get better was the mindset, and people spent that way.

On September 11, 2001, the terrorist attack had a huge impact on the American psyche. People were shocked and scared--and their spending reflected that. We immediately experienced a recession. It was a time of uncertainty and doubt, but we became united and resolved to live normally. For a short while the mindset that things will always get better was interrupted and we were cautious spenders. But with the rising stock market and the wealth people saw growing in their home values, consumer confidence and spending returned.

Then, during the summer and fall of 2008, the worst financial crisis since the Great Depression descended on us. Credit evaporated. People's investments and home values plummeted. Americans have lost $14 trillion in wealth over the past two years, and they feel the need to rebuild by saving. Because of the destruction of home equity, most consumers can't borrow against increasing property values. And banks are more risk-averse now, so credit cards won't be as widely available to stoke spending. Consumers can only spend what they earn--and 10 percent of them are unemployed. We really don't know the psychological impact of such a long and deep recession yet, but there's a chance that frugality will be in style for quite some time.

So franchisors and franchisees will need a strong value proposition for the foreseeable future.

How consumers calculate value today

Value is equal to the benefits the customer receives divided by the costs the customer incurs. Benefits include not only the product received, but also the environment and service experienced. Cost not only includes price but the time it took to be served. And the perception of cost is also increased or decreased by economic and social factors.

For example, prices are permanently higher. That takes money out of the pockets of consumers, further reducing what they can spend with franchise brands. The high unemployment rate scares the rest of us and makes us cautious in discretionary spending. Morally, conspicuous consumption is suspect. Cheap is the new chic.

However, price is only one "cost" in the customer's mind. Poor products, an unpleasant environment, and bad service may trump any benefit perceived by offering a lower price. You must offer a fair price, a competitive price. On the other hand, we know that pricing can always be matched--so it is hard to distinguish yourself or gain a competitive advantage when you lead with price.

Look at the industry. No consumer buys a pizza without a coupon. Everyone does it, so no one gains advantage from it. I admire what Domino's recently did instead. They stopped promoting themselves as cheap and are now admitting their quality needed improvement. They are promising quality and challenging customers to try them again. If they can deliver on quality, they can win back market share.

Unless you have a cost structure that allows you to sell profitably at the lowest available prices, leading with price is not a sustainable strategy. Your challenge is to add benefits that increase the perception of value--things like unique offers, high quality, and great service.

SMG Vice President Jack Mackey helps multi-unit operators improve customer loyalty and drive growth. To request "Creating Customer Value by Delivering a Great Customer Experience," contact him at 816-448-4556 or

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