• Overview
• What is Subjective Value?
• Factors that affect subjective value
• How to apply subjective value
• Applying Subjective Value to gain “Empathy”
• Applying Subjective Value to enable “Action”
• Subjective Value Exchange (method)
• Subjective value exchange = Asking someone to give up something they value in exchange for the solution we are offering.
• Try it now
• Step 1: Define a hypothesis to test
• Step 2: Create a fast prototype
• Step 3: Interview 5 potential customers
• Step 4: Conclude each interview with a realistic “subjective value exchange” moment
• Doesn’t only apply to customers!
• Additional Resources

Overview

The above image shows something called a desire path: A path formed naturally when people choose a more desirable route than the one provided. This worn-down path is an example of observable evidence of people’s subjective value. We can clearly see that many people value the grass route over the paved walkway.

When businesses assume what their customers want, they often invest time and money building solutions that don’t quite fit (e.g. the concrete walkway), and it’s usually too late when they discover their customers actually needed something different.

However, simply asking customers what they want isn’t enough. We could ask a thousand people where they think a walkway should be built, but direct observation provides us with more useful data. The principle of Subjective Value can be applied to gain real evidence using a testing method called Subjective Value Exchange (see below).

“A number of educational institutions, including Virginia Tech and the University of California, Berkeley, have reportedly waited to see which routes students, faculty and staff would take regularly before deciding where to pave additional pathways across their campuses.” - Source: https://99percentinvisible.org/article/least-resistance-desire-paths-can-lead-better-design/

What is Subjective Value?

Subjective Value is a traditional economic principle which states that the value of a product or service is not determined by what it costs to produce, but is instead defined by what someone is willing to pay (or do) for it.

In essence, the real value of a product is subjective. Value is in the eye of the beholder!

If you understand the principle of subjective value, and apply practical methods like Subjective Value Exchange it will help you:

• Spend your team’s time and resources on what matters
• Reduce the risk associated with new ideas - with compelling indicators
• Create greater value for more customers
• Better create virtuous cycles of mutual benefit

Factors that affect subjective value

Subjective value applies to both the tangible and intangible, like experiences and services. Also, a person’s subjective value can – and often does – change over time. Think about what you loved when you were a teenager versus what you love now.

Subjective value is affected by many factors, including:

• Individual tastes and preferences ”New Balance shoes always seem to fit my feet just right.”
• Expectations ”There’s always a long queue outside that new Thai restaurant. Must be worth it!”
• Perceptions ”This info must be correct because it’s from Harvard Business Review.”
• Past experience ”My first car was a Ford so I know they’re reliable.”
• Alternatives ”Now that I’ve tried the new Disney Plus I’m re-evaluating my other TV subscriptions”.
• Circumstances ”The band just announced it’ll be their last gig ever. I’ll pay triple for your ticket!”
• And so many more…

How to apply subjective value

In the Principle Based Management™ culture we pay particular attention to 3 components of Design Thinking (read more).

The principle of Subjective Value is most useful to apply in both the Empathy and Action stages.

1. Empathy 👈 - Understanding our customers
2. Creativity - Exploring problems with a creative mindset
3. Action 👈 - Testing ideas to drive learning

Applying Subjective Value to gain “Empathy”

Before exploring creative ideas it’s important to take time to understand more about your customers. What do they value? What are their needs, frustrations, fears, goals,…?

Because value is subjective, it can be challenging to measure. With a Design Thinking approach we often choose learning and progress over perfect data. One of the best ways to learn if something is valuable is to understand if it matters to people who need it most. We often speak with extreme users as a starting point. Check out this idea of “Extremes and Mainstreams”

Empathy is a critical component of Design Thinking, and knowing about subjective value means we can use it to have more insightful conversations with our customers. Check out Customer Empathy and Empathy Immersion for more guidance.

Applying Subjective Value to enable “Action”

It’s here that subjective value really pays off big-time. In Design Thinking the Action stage is about taking new, untested solution ideas and reducing risk before investing time and resources.

Remember the desire path above? In that example we would want to check if our plans for a concrete walkway will suit people’s needs before we actually build it!

So how do we find out if customers will value our idea enough to pay for it, or enough to choose it over an alternative option?

To really validate our idea it’s not enough to ask people if they would buy it, we need to find a way to simulate the solution and observe people’s actual behaviour and choices. We do this using a method called “Subjective Value Exchange”.

Subjective Value Exchange (method)

Subjective value exchange = Asking someone to give up something they value in exchange for the solution we are offering.

Subjective Value Exchange is a type of test that helps us determine the real-world value of our product. Until we observe that someone will exchange something of value, we won’t really know if our product is going to be chosen and used by real people. Just like the desire path we want to see clear, observable evidence of people’s subjective values.

So, we can now use our knowledge of subjective value to find out if potential customers value our new idea enough to make it viable. Everyone values things differently. So, do other people value our product enough to exchange something that holds value for them?

Types of value-exchange:

• Will someone click “Buy now for $25” of their own free will? exchanging money
• Will someone send an invitation email to 3 colleagues to try our new system? exchanging their reputation
• Will someone wait for 5 minutes to chat with a live customer support agent? exchanging their time
• Will someone subscribe to our newsletter by giving us their email address? exchanging their personal info… and trust
• Will someone input their credit card info to pre-order our new hygiene system? exchanging a financial pre-commitment

Real-world example of Subjective Value Exchange:

In many industries it’s common practice to use pre-orders to test interest in a product before creating the real thing. E.g. Publishers often launch a pre-order page before an author has finished writing the book, and video game companies take orders before a game is released.

In the example below from decibels.so they created a quick web page (using a template like Squarespace) to check if people would value their product enough to commit a 10% deposit to pre-order their hearing enhancers - a brand new type of product that’s never existed before.

They then used that evidence of consumer interest to validate the concept before investing in production, and it helped them in negotiations with manufacturing companies!

Try it now

Step 1: Define a hypothesis to test

• Think about what you need to learn to reduce risk and gain more certainty about your idea. E.g. Will people pay for it? It it easier to use than the alternatives? etc…
• Example hypothesis: “Hygiene suppliers will be willing to give their credit card details to pre-order our new infra-red self-cleaning toilet seat”

Step 2: Create a fast prototype

• Based on the hypothesis, choose a fast way to simulate the idea
• Try this simple activity that walks you through how to find different ways to quickly test new ideas: Ways to test (AKA "3 months, 3 days, 3 hours")
• Create the realistic simulation or “prototype” of the idea. It doesn’t need to be flashy, but it does need to appear realistic. Check out Prototyping 101 to learn more about how to create fast prototypes.
• Real example from GP Pro ActiveAire®️ - Prototyping “automatic air care units” to test a new model idea:

• Note: Make sure to think about a clear moment to ask for “subjective value exchange” (e.g. show a form to ask for credit card pre-orders)

Step 3: Interview 5 potential customers

• Find 5 people who fit your potential target customer Why you only need to test with 5 users (Nielsen Normal Group)
• Think about extreme and mainstream users when choosing who to interview
• Real example: Testing the air care unit prototypes with real customers

• Note: Read Customer Interviews for detailed instructions, including the great video by GV (Google Ventures) called “The 5 Act Interview”

Step 4: Conclude each interview with a realistic “subjective value exchange” moment

• Example: An option to buy, subscribe, share with a friend….
• Be careful not to lead the interviewee into a decision. Subjective Value Exchange only works if you observe what the person naturally chooses to do.
• If the person is not very talkative or they somehow skip over the choice, give them some time to look again, and then gently ask if they saw the option and encourage them to make a choice.

Doesn’t only apply to customers!

It can be easy to see how subjective value applies in our personal lives and to customers, but it’s an incredibly powerful principle to apply when it comes to creating preferred partnerships with employees.

A job is a bundle of attributes – responsibilities, schedule, location, type of work, culture, co-workers, etc. – that any one employee might enjoy (or not). And a person’s subjective value will evolve.

Here are just a few examples of how subjective value might show up in the workplace:

• Travel might be exciting to an employee early in their career, but as their family grows it becomes more and more of a negative.
• An employee might get deep satisfaction from working with their hands, but not like the rotating schedule required in the facility.
• One employee might love working from home while another dislikes it and wants to be in the office.
• One team member might enjoy public recognition – like being called by name for praise during a team meeting. Another team member might find it awful and prefer a private text message

Additional Resources

• Accelerating Principle Based Management™
• Customer Empathy
• Prototyping 101
• The "Rapid Prototyping" Mindset
• Customer Interviews