Beyond Price & Features: How Values, Community, and Status Drive Consumer Choice
Originally a thread on X/Twitter:
Consumers are rational most of the time. They usually make decisions based on simple dimensions like price and functionality.
But we’ve entered a new era in which many consumers are making decisions based on “Beyond The Rational” criteria. Unpacked:
2/19: A good test that I’ve used to assess whether a company’s product is set up to naturally gain market share is to ask and answer the question:
“If a rational consumer were faced with perfect information would they pick your product?”
3/19: If the answer to this question is “yes”, then growing market share is typically correlated to growing awareness.
If the answer to this question is “no”, then the company will most likely struggle to attract and retain customers over time.
4/19: Historically, the more commoditized a product was the more you could count on customers to behave rationally.
What you bought mattered. Where you bought it from didn’t.
Price and functionality mattered. The bells and whistles during and after the buying process didn’t.
5/19: But there’s a growing movement that’s challenging the entire concept of rationality.
The truth is that the human psyche is complex and not all decisions are made to produce an “optimal outcome”.
And what’s optimal to one person might not be to another.
6/19: “Beyond The Rational” thinking has always existed, but what’s worth internalizing is that its prominence is growing rapidly. Consumers are increasingly making buying decisions and favoring certain companies on dimensions other than functionality and price.
7/19: But, it’s not difficult to understand why so many of today’s consumers are making “Beyond The Rational” decisions.
They’re not making bad decisions.
They’re not making irrational decisions.
They’re making decisions based on higher order needs.
8/19: Higher Order Need #1: Values.
Consumers are much more vocal about their values than they’ve ever been before. Values are increasingly becoming part of people’s public identities rather than hidden at the family or community level.
9/19: And consumers are increasingly using their buying power to express their views. If a company’s values don’t align with the values of a consumer, it’s becoming increasingly common for the consumer to take their money elsewhere. Values matter.
10/19: A profound quote on the topic:
11/19: Higher Order Need #2: Community.
It’s a truism that human beings are social animals. We instinctually want to belong to a community and find “like-minded people” to interact with.
12/19: The vast majority of companies haven’t been able to create a sense of community for their customers. But some have and they’ve become powerful, almost unstoppable forces. @Apple, @onepeloton, @Athleta, @RobinhoodApp and @nubank are all examples.
13/19: Everyone knows the joke: “How do you know someone has a Peloton? Easy… they’ll tell you.”
And stock or options bought with the Robinhood app comes with the emotional attachment of being part of Robinhood’s anti-establishment community.
Attachment to community matters!
14/19: Higher Order Need #3: Exclusivity and Status.
We live in a big and crowded world that makes it easy for people to feel like interchangeable parts in life’s machine. So it shouldn’t come as a surprise that human beings have a deep psychological need to feel special.
15/19: Some of today’s best companies focus on exclusivity and status:
Peloton sells high-end equipment and their badges and instructor shout-outs celebrate their members’ accomplishments.
Amex’s Black card is rare and it’s well known that anyone who has one is extremely rich.
16/19: Exclusivity and status matter. So it’s not a surprise that NFTs and crypto punks have taken off. It’s not a surprise that marketplaces for collectibles are on fire. And it’s not a surprise that airline rewards programs have stood the test of time.
17/19: And social media has amplified the desire for exclusivity and status because it allows consumers to share within their friend groups and communities. Owning a fraction of an expensive piece of art generates “social cred” when everyone you know knows about it!
18/19: The sad truth is that most companies are doomed to live in the past and aren’t going to make the transition into this new world. The companies of tomorrow are going to increasingly win if they can design their products to cater to “beyond the rational” decision makers.
19/19: And I have to give a shoutout to @eshan_shetty who helped me refine the “Beyond The Rational” concept. He put up with my ramblings and helped shape the final product!