Valuation and Devaluation Effects – Powerful Marketing Strategy to Increase Sales
Why does a snowed-in customer value a snow shovel more? All you need to know about Valuation and Devaluation Effects for marketing and sales.
Valuation and Devaluation Effects – Powerful Marketing Strategy to Increase Sales
With this post you’ll learn:
- What is the Valuation and Devaluation Effect?
- How to use Valuation Effect to increase sales?
- Why appealing to customer goals makes a jaw-dropping sales strategy?
If you are ready to master customer psychology, let’s jump in.
When is the best time to sell a snow shovel? Probably during or right after a big snowstorm when people really need one, and are even willing to pay more for one. This makes logical sense because if a consumer needs to do something, they will place more value on the product(s) that will help them fulfil that need.
Valuation Effect has also played a big role in insane prices of protective masks and hand sanitizers brought about by the COVID-19 pandemic. Some people ended up charged with price gouging, like this young man from Tennessee.
In consumer psychology, this phenomenon is captured by the idea of a goal-driven Valuation Effect – the more useful a product is for accomplishing a goal, the more a consumer will value it. A snowed-in consumer will value a shovel more than if that same consumer didn’t have any snow to get rid of, just as a hungry consumer will pay more for a sandwich than a consumer who isn’t hungry.
The Valuation Effect
Arthur Markman and C. Miguel Brendl published a paper in 2000 that elaborated on this idea that consumers’ goals affect their value judgments. More specifically, they stressed that whatever goal was most important at a given moment could skew valuations.
In one of their studies, the authors offered to sell raffle tickets to college students. They approached students who were waiting in line at their university bursar’s office (the office that collects university fees), and presented them with one of two raffles:
- Half of the students were asked how much they would be willing to pay to enter a raffle for $1000 in cash
- The other half was asked how much they would pay to enter a raffle for $1000-off their university bill
If they were offered the $1000 cash raffle, these students were willing to pay only about 93 cents for a ticket, but if they were offered $1000 off their bill (which seemed very significant given where they were), they offered about $1.52 on average. That’s a 60% increase simply by telling the students that the prize money would address a relevant goal.
As a point of comparison, the authors also approached students in line at a cafeteria with the chance to buy raffle tickets, and they found that students offered $1.12 on average for the chance to reduce their university bill. This time, because the students were not in a place that made the goal of paying their bill very relevant (as compared to the bursar’s office), they did not value the raffle as much.
These findings demonstrate the Valuation Effect: consumers will value a product more if they feel they have a greater need for it. When students feel like they need to pay their bills, then they see money earmarked for those bills as more valuable than plain cash.
In another compelling study, the authors offered to sell raffle tickets to two groups of smokers for the chance to win a carton of cigarettes. One group of smokers had recently taken a smoke break, while members of the other group were about to take a smoke break. Even though the raffle wouldn’t be held for many days, smokers bought more tickets if they hadn’t had their smoke break yet simply because they felt a stronger need to smoke. In other words, because they wanted a smoke, they paid more for the chance to win cigarettes.
The Devaluation Effect
Another paper by Brendl and Markman published in 2003 suggests an additional way that goals can influence how we value products: a Devaluation Effect. While we may overvalue things that can help us achieve a relevant goal, we also may systematically undervalue things that don’t help us achieve that goal. For example, in another version of the cigarette study, smokers were offered a raffle for a cash prize either before or after their smoke break, and it turned out that they valued the cash less before they’d had their smoke. Thus, it may be the case that smokers undervalued the cash (in addition to overvaluing the cigarettes) when they needed to smoke. In other words, because they want to smoke, but the cash can’t help them satisfy their cravings, they were less interested in the money.
Another study involved asking consumers to taste-test some popcorn and evaluate a series of products, some of which were food items and some of which were not. Half of the participants first got to eat a handful of the popcorn, which was meant to stimulate their appetites and leave them wanting more, while the other half had to wait until after they evaluated the products in order to try the popcorn. The results suggested that when consumers’ appetites were stimulated, they rated the non-food products as less interesting than did consumers who had not been stimulated. In other words, consumers devalued the non-food products because they couldn’t help them take care of their hunger.
Value of the Valuation Effects
The Valuation and Devaluation Effects lend themselves to a few immediately obvious applications. First, they suggest that you should always try to put your product or an ad in front of a consumer who is already thinking about a relevant goal. Many online advertising strategies already allow for an approach like this, for example, by matching website content or search keywords (like Google AdWords) to the product or product goal.
A similar strategy for leveraging the Valuation Effect is to identify patterns or times when customers are more likely to be thinking about the target goal, and to appeal to them during these periods (this is similar to the strategy of targeting the Fresh Start Effect, which is also driven by customer goals). More importantly, however, is that the Devaluation Effect suggests there may be negative consequences to presenting an advertisement at a time when consumers are thinking about goals not relevant to your product. If they see an ad for popcorn when all they want is a cigarette, they will place much less value on the popcorn.
Also note that when customers are experiencing a Valuation Effect, such as the case of someone in need of a snow shovel following a blizzard, they are possibly willing to pay more for the relevant product. However, an important concern with trying to act on this price overvaluation is that you need to be careful not to upset people if you raise your prices.
A slightly more subtle approach (although also not uncommon in advertising) is to focus your message on the desired outcome or goal instead of the product itself. Highlighting a goal makes it more immediate and relevant for the consumer, even if they had not been thinking about it before seeing the advertisement. In fact, many times people may ignore their goals unless they are explicitly reminded of them (weight-loss goals are a prime example). Once a goal is activated, the Valuation Effect will kick-in, and your product will look more attractive. We wrote about it in this post.
For example, plenty of homeowners have a vague goal of improving their homes in some way, but this goal is rarely top-of-mind in their everyday lives. If you’re trying to sell home improvement products, then an ad that reminds your target customers of their home improvement goals will increase the value of your products in their eyes.
With regards to money (such as in the raffle studies above), the Valuation Effect also helps to explain why people actually really like gift cards. Even if a $50 gift card seems like just a restrictive version of $50 in cash, customers may find gift cards more subjectively valuable because the “goal” of the money is made very clear. This is true for things other than money as well: if Apple wants customers to upgrade from the 16GB iPhone to the 32GB or 64GB iPhone, they should tell people explicitly what they could do with that extra memory space. Keep in mind which features of your product appeal to specific customer needs, and make sure they understand exactly which needs can be met by those features.
- A product will be overvalued when customers believe it will help them accomplish their goals.
- Customers focus on the goals that are most obvious or most relevant to them at any given moment. Just because they have a long term goal doesn’t mean they will act on it unless they are reminded of it.
- Appeal to customers’ relevant goals in order to make your product more attractive.
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