Three ways to think about value: scarcity, context and signalling

Bring to mind someone ordering oysters in a restaurant.

Who are they? What do they look like? What type of restaurant are they in?

I was surprised to learn this week that Oysters were an everyday staple in the Victorian era, so plentiful that they were given away free in pubs. They fell out of fashion in the early 20th century, and thereafter oyster beds declined in UK waters.

Whilst oysters haven’t changed much in the past few generations, our beliefs have; current associations of luxury & decadence would have seemed strange 150 years ago.

This leads to a broader question: what is behind what we value?

I’d argue we value what we believe in, and that belief is largely driven by scarcity, context & signalling. Here’s as brief a summary as I can manage.

1) Scarcity

Natural scarcity

The team at Ogilvy Change subdivide scarcity into rarity, quantity, competition & time. This makes intuitive sense, whether applied to goods (like truffles or blue fin tuna) or services (like front row seats at the theatre).

Artificial scarcity

In business scarcity is just another lever to generate demand, as evidenced everywhere from Disney’s release schedule to your hotel booking website.

2) Context

Value is relative, not absolute

Karl Marx put it best:

“A house may be large or small; as long as the surrounding houses are equally small, it satisfies all social demands for a dwelling. But if a palace rises beside the little house, the little house shrinks into a hut.”

Culture

The most popular restaurant I saw whilst on holiday in Thailand was Mont. They sell toast. Toast with butter. Condensed milk. Chocolate spread. But essentially grilled white bread. If I proposed we pop out to a restaurant for toast in the UK, you’d assume I had a brain injury. In Bangkok I’d be on trend.

Mont nom sod Chiang Mai

A very busy Mont outlet in Chiang Mai, and some of their toast (pic: mont-nomsod.com)

Comparison

A wonderful example of anchoring is at the Ferrari museum in Maranello. After you’ve gawped at the wonderful lines of the 812 Superfast (£260,908) and heard the rumble of the naturally aspirated V8 in a 458 Speciale (£208,000), you exit through the gift shop. Here you can buy a single bolt from a 1996 F1 car for £450. Mounted in Perspex with an authentication certificate, it is a potent totem. It isn’t a bolt at all: it embodies belief, and signifies connoisseurship. The fact you can buy an entire car for £450 is not the point.

Ferrari screw from Schumacher Suzuka1

A bolt or a potent totem? Perhaps both.

Similarly, when you are specifying options on your £90,000 Ranger Rover Sport, Carpathian Grey metallic paint seems reasonable as a £1700 option by comparison. This is about £170 a litre.

Brands frame our perceptions

As Barden makes clear in the excellent Decoded, brands frame our experience of goods & services. Framing is why people pay about two grand more for a VW Sharan over a Ford Galaxy, virtually identical cars made on the same production line.

Habituation

The novelty soon wears off a new purchase. Psychologists call this hedonic adaption. Consumption is merely a treadmill.

At a societal level, the Easterlin paradox is apt: as societies get richer there are diminishing returns to happiness. A fascinating study on housing supports this point.

Indeed, as we get richer, the market premiumises existing products to soak up our disposable income, even in unengaging categories. You can buy a “cool” washing machine LG Signature range if you so wish.

3) Signalling

Sign value

Baudrillard described four ways an object has value. I’ll focus on three:

  • Use value – what it does;
  • Exchange value – what you can trade it for;
  • Sign value – how it is perceived in relation to other items & what it implies about the owner.
SMEG & Beko_How cool is your cooling device.png

How cool is your cooling? Pics: SMEG & Beko

A SMEG fridge chills just like a Beko fridge; both cost a portion of your monthly pay; however they both have radically different connotations. Functional differences aside, when you buy a SMEG fridge you are buying into the unwritten, intangible but powerful meaning it conveys.

Communicating status

Social distinction is the shadow motive behind much consumer behaviour. We have such a profound need to signal identity that the normal rules of supply and demand don’t always apply: increasing prices can increase demand because of exclusivity. As Clarkson said about SUVs:

“Admit it. You want a big SUV because it’s part of today’s uniform. It tells people that you have a second home in the country and that you shoot. It says that money’s not a worry. All of this is human nature. It’s silly but it’s how we are.”

So many choices only make sense from the perspective of evolutionary biology, the signalling value they offer. Rory Sutherland makes a similar point about cheese:

“…middle-class rules now require that every dinner party cheeseboard must contain at least two cheeses which aren’t very nice… I was baffled by this for a long time, until I realised that these cheeses are not bought to be eaten, but to signal the sophistication of the occasion…There are many forms of consumption today where — dress it up all you like — it is obvious the main value lies not in the intrinsic value of the thing itself but in signalling the refinement of your taste. This increasingly creates a kind of feedback loop where people are driven to absurd lengths to gain competitive bragging rights.”

Absurd lengths? The Silicon Valley elite’s latest status symbol: keeping chickens. As the Washington post report:

“..egg-laying chickens are now a trendy, eco-conscious humblebrag on par with driving a Tesla…Being able to say you have chickens says, ‘I have a back yard,’ and having a back yard says, ‘I have space.’ And having space means you have money, especially when it comes to Silicon Valley real estate.”

Signalling is useful lens for consumption as it allows us to consider underlying motives. In the western world experiences, knowledge and connoisseurship are new markers of status. In California buying SUV might serve a similar purpose to buying a live chicken.

Belief is a trick we play on ourselves

Blind taste testing is often a waste of time; I’ve seen budget supermarkets win taste tests blind, then lose them branded. Research by Stanford neuro-economist Baba Shiv shows our expectations overcome our sense impressions. You taste what you believe. It’s a variant of the placebo effect.

In summary?

  • What you believe in, you value.
  • Value is subjective and relative, not objective and absolute.
  • Value is dynamic, ever changing.
  • Value is dependent on context and culture.
  • Brands frame our experiences.
  • Brands act as carriers of belief.
  • Expectations increase over time. There is no end point.
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About Simon Shaw

I'm a Director at an insight consultancy. I'm interested in marketing, market research & consumer psychology. The views expressed are not necessarily those of my employer.
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