True Measures: Would You Buy It? Edition

May 20, 2009

A local news programs has a “We Try It Before You Buy It” segment.  They buy a new product, ask someone to test it out and report on what they liked and disliked.

The segment ends by asking the tester whether they would buy the product or not.  Like Reichheld’s question (would you recommend us to a friend?), this is a simple, effective measure of truth.

Often, product testers seem to like the product but then say they would not buy it.

Deciding to buy is a value judgment where we instinctively weigh the benefits of what we get against the value of what we give up.

Many people assume the value judgment is simply weighing the product benefits against its price, but there’s much more to it.  There may be several factors that are as important or more important than price.

What’s interesting is that most people can’t articulate these other factors.  They may only be vaguely aware of them.  I figured this out by thinking about my own buying decisions.

F or example, I wondered why I usually buy gas from a station further from my house (station 1)  than a station that I would normally prefer (station 2).  The answer wasn’t price, since the price was always the same at both stations.

There are two factors that cause me to go to station 1.  First, due to traffic patterns, station 1 is safer for me to get to.  Second, I’m cheap and health conscious and I found that I would tend to buy more junk from station 2.  Going to station 1 solved that problem.

How I value what I receive in exchange for everything I give up to get it (not just price) is called value proposition.  Very few people understand it.  Very few managers understand it.  Some do.   I like to invest in companies with managers who do.

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