Applying The Subjective Theory Of Value To Customer Surveys – Part I

Last time I talked about the importance of customer surveys to improving your ads and marketing. Now here’s a set of ideas that could change the way you approach customer surveys…

It’s still on the drawing board, but here’s the set of ideas so far. The ideas are based on the Austrian theory of economics.

How can the Austrian theory of subjective value apply to collecting surveys and data for marketing and business? Remember that the fundamental axioms of the subjective theory of value are as follows: (This can be seen on http://blog.mises.org/archives/002102.asp)

– Value is subjective to each individual

– There is no intrinsic value to something, all value is derived from what each human mind assigns to it

– The value scales in humans cannot be ranked in numbers against one another in a persons mind, because any number scale made up is also ultimately subjective in terms of what that number means in the person’s mind. This means value scales between humans cannot be ranked either.

– Thus value is ordinal, meaning a person ranks and prioritizes values in a “greater than this” “less than that” fashion. But value is not cardinal; meaning not based on actual numbers, as in putting a 10.75 on one valued thing and 1.04 on another. That is not how the human mind works. Values are ordinal, not cardinal.

So how do these axioms apply to marketing metrics, customer surveys, selling expectations, and the like?

Most surveys offer value scales, such as “on a scale of 1-10, how important do you think customer service is?” or “on a scale of 1-10, please rate our product”. But what do these rankings actually mean? Does an average value of 8 mean that people are overall 10% more satisfied than they would be if they had an average value of 7?

Does that mean we should put 10% more effort to pleasing customers to expect a 9 in the next round of surveys? How do these surveys tell companies about where to place their priorities? By playing the satisfaction percentage numbers?

The issue with these types of surveys is that, despite any statistical analysis applied to the data of these surveys, it is difficult to extract any meaningful and accurate information. This is because these survey methods go against the subjective theory of value, trying to make ordinal values into cardinal values whereas the theory shows that’s not possible.

A 9 on scale of 1-10 does not say whether a person is satisfied with 90% of the service, or it’s almost perfect. It won’t even tell if there is a big flaw that will cost the company to lose the customer to the competition but he does not see it that way then. There is no way to tell someone’s priorities with such number scales, which is the essence of ranking different values to one another in a person’s mind.

This weakness can apply to service related surveys (please rank on a scale of 1-10 the rank of each of the following qualities of service), selling expectations surveys (which products would you like to buy most on a scale of 1-10), employee surveys (how satisfied are you with the manager’s wage/kindness/attitude/etc.), and the analysis to their respective metrics.

Yet does it have to be this way? Is there a better way to conduct surveys and tests that would return useful and accurate information? The answer lies in applying the subjective value theory and its implications to the format of the surveys, and rank results as ordinal rather than cardinal. For example lets say you want to find out which upcoming games gamers would want to buy most. A normal survey scale 1-10 survey would look like this:

Please rate how much you want to buy the following PS2 games, on a scale from 1-10:

Call of Duty

Grand Theft Auto

Prince of Persia

Metal Gear Solid

Gears of War

This is how the survey, adhering to the subjective value theory and ordinal valuation, might look:

Please place in order, from first to last, the following games you would buy (place letter only):

a) Call of Duty                      1st_______

b) Grand Theft Auto            2nd_______

c) Prince of Persia               3rd________

d) Metal Gear Solid             4th________

e) Gears of War                   5th________        would not buy any____

It’s safe to assume that the 1st game jot down would be valued more, if not at least as much as the 2nd, and 2nd more than the 3rd, etc. This also takes into account the customer’s budget constraints and concept of diminishing marginal utility (In this case, each additional game is valued less than the previous games) and could provide information on which games are expected to bring in the most sales.

To Be Continued…

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