Have you ever thought about how to decide which product or service to launch into the market? Or maybe, how to make that product so appealing that people can't resist buying it? This is where the theory of marginal value can be your ally, but with a slight twist: let's hack it to work in favor of your business.
What is the Theory of Marginal Value?
The theory of marginal value, formulated by economists like Carl Menger, William Stanley, Léon Walras, David Ricardo, and Alfred Marshall, was something I discovered in 2019 when I had to deeply study classical economists because I was going to teach the "Universal Economic Thought" course at the university. At that time, we were completely isolated due to COVID-19, so studying was not only a way to gain knowledge but also became a way to "relieve stress"...
In essence, the theory is based on the idea that the value of a good is not constant but depends on how much additional value or "utility" each extra unit of that good provides to a person.
Now, let's analyze some of its postulates with easy-to-understand examples:
1- Imagine eating your favorite food. The first bite is delicious, the second one too, but each subsequent one gives you less satisfaction. This is known as Diminishing Marginal Utility.
2- Subjective Valuation: what might be gold to you, might just be metal to someone else. The value of something depends on what you, as an individual, assign to it.
3- Decision Based on Marginal Comparison: when you decide to buy something, you're comparing how much happier that purchase will make you compared to other options or doing nothing at all.
4- Value Depends on Scarcity and Marginal Cost: if something is scarce or requires more resources, it's worth more.
5- Supply and Demand Adjust the Price: if there's high demand and low supply, the price goes up or vice versa...
6- The Focus is on Production: the more you produce, the more efficient you must be to maintain profits.
Now, although this theory seems the pinnacle, it also has its flaws because, after all, economics is a social, not an exact, science.
In this author's opinion, the first issue is that it ignores social factors because it doesn't take into account how trends (fashion) or social pressure can make something more valuable to you, going to the extreme with subjectivity; if everything is subjective, how do we measure and compare value among people? It would be extremely complex.
From there, we can assert that it doesn't apply to everything because not all products follow the rule of diminishing utility, an example being that fiction series we love; the more we watch it, the more we want to know what happens.
On the other hand, we have the factor of "human irrationality": sometimes, we buy things on impulse or to feel better, not always being as rational as the theory suggests, especially since our decisions are based on emotions, hence why a branded t-shirt might cost more than a generic one, even if they use the same fabric; that's just how it is, that's us...
Hacking the Theory of Marginal Value for Entrepreneurs
Here comes the fun part: how can you use these ideas to create your next success?
1. Market Segmentation by Marginal Utility:
In other words: identifying what your consumers value the most.
Here we can divide consumers into two groups:
A)- Utility-Sensitive Consumers: those who greatly value the first units of a product but whose additional satisfaction decreases quickly with further consumption. Example: raisin buyers (dehydrated grapes) who value exclusivity and rarity.
B)- Consumers with High Marginal Utility: those who continue to gain high satisfaction even with more consumption of the product. Real example: "Salt Grill Seasoning", a basic meat condiment created by us at
@bagusrl, where the marginal utility does not decrease as quickly.
Hack: combine perceived value with marginal cost. If you sell "dye", the marginal cost of a packet is low. But if you offer "naturally smoked dye", you can charge more. The additional cost is minimal, but the perceived value skyrockets...
2. Dynamic Pricing:
Offer discounts at times when demand is low or for customers who haven't bought in a while, this can help reignite sales.
Hack: Break the marginal curve with innovation. Netflix vs. Blockbuster is a classic; while Blockbuster stuck to traditional sales techniques, Netflix innovated with unlimited subscriptions, changing the logic of value.
3. Innovation to Maintain Value:
Gourmet Seasoning" on a very small scale due to the complexity in its preparation. The real (not fictional) scarcity of that product makes each package more valuable to consumers.In our case (at @bagusrl), we launched condiments only for subscribers and even made "
Hack: when there's a real opportunity, use scarcity strategically, don't create it. Creating fake scarcity is not advisable, nor is it ethical.
4. Marketing that Educates:
Instead of just selling, teach how your product can make someone's life better or easier, apply the Value Selling technique, and you can also rely on testimonials and reviews.
Hack: play with price psychology. Offer a "Premium" plan where the marginal cost is low but the perceived value is high. At @bagusrl, we offered a plan with six subscription levels, and it worked from day one... a topic for a full article.
5. Loyalty Programs:
Example:
Offer points or benefits for each purchase. The more they buy, the more value they get, counteracting diminishing marginal utility, just as we did at
@bagusrl between 2022 and 2024, unfortunately, we couldn't continue for various reasons, which we will explain in an upcoming article where we'll gather the most significant challenges and problems we faced over the last three years.
6. Personalization:
Allow customers to design their own products/services. Personalization increases perceived value because it's unique to them. We recently tackled this strategy in the article Innovathon.
7. Feedback and Adaptation:
Use surveys or social media comments to understand what your customers like and don't like. Adapt your product accordingly.
7 Tips:
1- Understand your customer, don't assume everyone values the same things.
2- Research and listen every day.
3- Test and learn, don't be afraid to experiment with prices, products, marketing strategies...
4- Value the experience: the value isn't in the product but in the experience it offers.
5- Don't ignore costs, but focus more on what your customer thinks it's worth.
6- Innovate >>> mass produce: sometimes, a small change in your business model or product generates more value than cutting costs.
7- Experiment: try prices, limited editions, subscriptions... to discover what spikes perceived value.
Conclusion: Be an Economic Pirate.
The theory of marginal value is a map, not a trap. Use it to understand costs and scarcity, but break the rules when necessary. Success doesn't lie in following theories to the letter, but in understanding them and applying them for the benefit of your business, as long as it benefits your reason for being: the customers. Hack, test, and create something your customers love to pay for.
Next time you plan a product/service, ask yourself:
How can I make this product feel more valuable than it costs to produce?
What emotional or innovative element can I add to break traditional logic?
How can I create exclusivity without increasing costs?
What post-sale services can maintain or increase the product's value?
What do your customers truly value in your product or service?
What loyalty or reward programs can keep your customers coming back for more?
Remember that:
Congratulations @vproenza! You have completed the following achievement on the Hive blockchain And have been rewarded with New badge(s)
Your next target is to reach 50 comments.
Your next target is to reach 400 upvotes.
You can view your badges on your board and compare yourself to others in the Ranking
If you no longer want to receive notifications, reply to this comment with the word
STOPCheck out our last posts:
Hello,
Before publishing any content could you please read these guides:
Hive Guide 101: Hive 101
AI Guide: AI-Generated Content = Not Original Content
Plagiarism Guide: Why and How People Abuse and Plagiarise
Thank you.