Last month I wrote a mini-essay titled “It’s cool…but I wouldn’t pay for it” in which I briefly discussed a phenomenon that is becoming more and more common. A company launches a good service but has trouble finding users who will actually open up their wallet and pay for that service. This has led most recent web-based companies to either offer their service free of charge - relying exclusively on ad revenue for cash flow - or give away the basic service free and try to upsell premium services.

After making that post, I started to think about what does make consumers open up their wallets. What are their motivations? I want to answer the simple question: Why do people buy stuff?

After a lot of thought, I came to the hypothesis that each purchase is motivated by the following 2 factors:

Functional - Many products we buy fulfill a tangible function. In other words, they have a measurable utility to us. Each function of a product has varying utility to each consumer depending on his or her needs. For example, a BMW M5 has a top speed of 205MPH. For the average buyer that function is offers little utility. But for a German driver who needs fast transportation on the Autobahn, the utility might be very high. Similarly, the fact that a buffet is all-you-can-eat may have high utility to a football player but little utility to someone dieting. On the other hand, a bottle of water has universal and similar level of utility to most consumers.

Emotional - There are a few primary emotional states that all humans strive for (whether they admit it or not): happiness, security, attractiveness, belongingness, and, above all, a feeling of importance. The interesting thing about emotional-based purchases is that they have no bound. Humans always want more. A man who owns a Casio wants a Seiko. A man who owns a Seiko wants a Rolex. Similarly, people are generally interested in spending money to achieve higher levels of the aforementioned emotions.

this leads us to…

Rishi’s laws of Consumer Behavior

If your product appeals primarily to the consumer’s functional needs: That consumer will likely open their wallets to you, but will probably do so unwantingly. Nobody particularly enjoys buying milk, toilet paper, or store-brand cola, but they do so because it fulfills their needs.

If your product appeals primarily to the consumer’s emotional needs: That consumer will likely want to open their wallets to you, but will probably not do so. People want Porsche 911’s, Rolex watches but few buy them, even if they could technically afford it. Now, if you intend your product to be a niche-market, luxury item then there’s no problem.

If your product appeals both to that consumer’s functional side and emotional side: The consumer will likely open their wallets to you, and feel happy about doing so. Ideally, you want your product to fit into this last category: appealing both to the functional and emotional side. This is not so much a product design exercise but a marketing exercise. The art of branding is all about how to make a product sell for more than it would if it was perceived as just a commodity (only functional). It’s the reason why Ralph Lauren (declare to the world that you’re successful with the Polo logo) can charge $60 for an ordinary polo shirt or why Coca-Cola (make every moment a memory by drinking a Coke) can charge more than store-brand cola. But, to accomplish this, it’s also important to remember that you must also fulfill a clear functional need for your consumer. A great (if obvious) example of a product which accomplishes both is the iPod. There are several competing hard-drive based MP3 players which are very competitive. Apple is able to not only dominate the market, but do so selling it’s products at a significant price premium. Through a combination of product design, packaging, and marketing, Apple has consistently made each iPod hip and luxurious. They made the MP3 player be more than a functional purchase, they made it an emotional purchase.

Few companies in the computer industry have been able to appeal to the emotional motivations of consumers. Specifically, I can’t think of a single software company that has. Possibly video game software, but one could also argue that it’s also functional: video games provide the function of entertainment. What about on the web? Are there any websites that you pay for that appeal to your emotional side? This is something I’ll be thinking about for the next few days…