2. Experiences aren’t Quantities

“A fundamental problem in business is that business tools are nearly completely quantitative. . . The qualitative is almost ignored completely or nonexistent in any kind of organization’s decision-making process — but it’s always driving customer decisions.”

— Nathan Shedroff, Chair of the MBA in Design Strategy at CCA[1]

To improve the depth of understanding and accuracy of strategic decision-making, many companies now collect massive amounts of quantitative data. The hope is that by digging into this data and tying key metrics to business goals through various tools (e.g., Triple Bottom Lines, Key Performance Indicators, Critical Success Factors, Balanced Scorecards, etc.), they can better understand and utilize their information. While the insights gleaned from big data are often highly valuable, they’re not a silver bullet.[2]

When it comes to strategy, there are two ways that quantitative data frequently falls short of painting the full picture:

  1. Correlation does not imply causation[3] — While quantitative data may clearly show us “what is happening,” it doesn’t provides the context and meaning necessary to explain “why it’s happening.”[4]
  2. Humans are not “Econs”[5] — People are not fully rational economic agents following rules of logic and probability in order to make decisions that maximize their expected utility.

To paint the fuller picture and inform better strategic decisions, we need to understand contexts and human motivations through a qualitative lens. Shedroff highlights the undeniable importance of qualitative values with a simple example:

“[When you hear business people] say ‘no one’s going to pay more for things’ … look at the watch they’re wearing, or the phone that their using; ask them what car they drive; look at the clothes that they’re wearing; because I guarantee you, the people who say this don’t even believe it themselves — they’re not wearing the cheapest watch they could find, they’re not wearing the cheapest clothes, and they’re not driving the cheapest car.”

Since we can easily find fully functional watches for less than $10[6], while some luxury watches frequently sell for more than $100,000[7], there must be something that’s more valuable to us than the ability to tell time. But what are these qualitative values? And if they’re not quantities, how can we measure them?

Understanding Qualitative Values

If you’re trying to design business propositions and experiences that appeal and resonate with people, you first need to understand the deeper motivations behind their behaviors and decisions.

One common framework for understanding human needs and values is Maslow’s Hierarchy of Needs.[8]

Maslow's Hierarchy of Needs

Learn more about Maslow’s Hierarchy at Simply Psychology

As we can see, financial and functional (quantitative) values are critical for fulfilling lower steps of the model (e.g., the finances to obtain a sufficient number of calories, a warm bed, and necessary hours of sleep). However, individuals focused on higher steps will be motivated by other, more qualitative and personal values such as the strength of their relationships, emotions, personal identity, and an internal sense of purpose.

Subsequently, when attempting to calculate the true value of a business, product, or service to customers, both quantitative and qualitative values must be accounted for.

For example, using this lens to break down the cost of a $30,000 watch[9]: If we assume that $10 is roughly enough to cover its basic timekeeping functions, the other $29,990 of the watch’s value could be attributed to fulfilling one’s identity needs (i.e., self-esteem, status, and ego), aesthetic needs, or possibly the watch holds personal significance.[10]

Bonus: The relationship between “qualitative motivators” and “experiences.”
Qualitative values help explain why psychologists have found that experiences make us happier than material purchases. Via WSJ:

“[Experiences] tend to meet more of our underlying psychological needs. . . They’re often shared with other people, giving us a greater sense of connection, and they form a bigger part of our sense of identity. If you’ve climbed in the Himalayas, that’s something you’ll always remember and talk about, long after all your favorite gadgets have gone to the landfill.”

— Dr. Thomas Gilovich, Psychology professor at Cornell University

Measuring Qualitative Value

Research-wise, whether they’re qualitative or quantitative, the communication of needs always falls into one of three categories:

  1. Explicit Needs — The subject is aware of and able to articulate their needs.
  2. Tacit Needs — The subject is aware of their needs, but either struggles to or can’t articulate them.
  3. Latent Needs — The subject is unaware of their own needs, but may be able to communicate their frustrations and/or give experiential feedback.

As Ryan Armbruster showed in his presentation, ‘Design and Innovation: The Human Perspective,’ each category requires different types of tools and methodologies in order to elicit, measure, or understand the need.
 

from Ryan Armbruster

Different needs require different research methods.

Qualitative needs, in addition to their inherent subjectivity, are rarely explicit. Thus it’s unlikely to uncover someone’s true motivations through any line of direct questioning. Instead, we can measure and quantify various outcomes and effects. Then, by stringing together and analyzing multiple findings, we begin to see what’s actually happening.

For example, before launching their first retail locations, Apple used qualitative research to understand how they could design the best customer experience and turn customers into loyal brand advocates.

“When we launched retail, I got this group together, people from a variety of walks of life,” says Ron Johnson, head of Apple Retail. “As an icebreaker, we said, ‘Tell us about the best service experience you’ve ever had.'” Of the 18 people, 16 said it was in a hotel. This was unexpected. But of course: The concierge desk at a hotel isn’t selling anything; it’s there to help. “We said, ‘Well, how do we create a store that has the friendliness of a Four Seasons Hotel?'” The answer: “Let’s put a bar in our stores. But instead of dispensing alcohol, we dispense advice.”

Fortune Magazine[11]

This one unexpected insight led to a slew of analogous research into high-end resorts and hotels. For instance, Apple found that Ritz-Carlton customers – who are always considered “guests” – are warmly greeted within 10 seconds of their arrival, and they receive a “fond farewell” and an invitation to return upon their departure. On top of this, on-stage employees are trained to use a guest’s name whenever possible. As Forbes contributor Carmine Gallow shares, “That warm, friendly greeting makes people feel special, valued, appreciated, and – most importantly — acknowledged.” These are just a few of the many strategies Apple discovered and emulated from qualitative research.

Some common qualitative tools and methods:

Overall, the insights gained through qualitative research will allow you to better understand the context and driving forces behind customer decisions. Marrying these qualitative insights with big data will inform significantly more accurate strategies and business decisions — and will help you design valuable business propositions that will deeply resonate with both current and future customers.

Main points:

  1. One way to think about alternative metrics is as the deeply foundational, measurable pieces behind the more commonly tracked stats.
  2. Profits are an intentional side-effect of your business’s value propositions to customers
  3. Quality can’t be measured with a ruler…

    from Walt Disney

    … unless you’re Mary Poppins.

In part 3, we’ll present a macro-example of qualitative measurement as a case study.