CUSTOMER VALUE – A CASE STUDY
A firm must design and create products and services which customers consider as value and not in the opinion of the firm. We have given below a case study how even reputed firms like P&G can go wrong in their assessment of customer perception.
In the 1970s P&G recognized a mass-market opportunity in the potato chip business in the US and decided to tap it, banking on its time-tested strength in marketing, advertising and distribution.
Findings from Market Research:
P&G did some market research and found out that in the potato chips business, two problems on the distribution front hampered national-level marketing.
1. The fragile nature of the product rendered long distance dispatches unworkable; the product was getting broken in transit.
2. It also spoiled quickly, leading to a low shelf-life.
P&G felt that by solving these two problems, it could enter the industry as a national marketer and gather a sizeable share of the market.
P&G improved the product to suit distribution: P&G solved the two problems and entered the industry with Pringles. It ensured that Pringles did not break easily. It also tackled the â€˜poor shelfâ€™ issue by improving the product suitably. It tested the product prior to launch and received feedback that consumers judged Pringles to be â€˜as good asâ€™ competing brands.
Aggressive entry: P&G entered the business with a bang. It organized its distribution across the US and spent $15 million on advertising during the launch and $50 million over a period of eight years. It followed a policy of premium pricing, keeping its price 10% above competition. Its goal was 25% share of the market and $350 million sales revenue per annum by the second year of operation.
The downslide: P&G did achieve 25% market share in the early period, largely on account of customers who were eager to try out a new product. But, repeat purchases fell and market share fell to 10% by the third year. The share continued to drop time and reached less than 7% by 1978. P&G thereafter continuously withdrew advertising and brand support for Pringles, as both revenue and market share continued to decline.
P&G found that now consumers were of the opinion that Pringles tasted â€˜artificialâ€™, though earlier in blind taste tests, they had said it tasted
as good as other brands. P&G found that consumers now inferred the â€˜artificiallyâ€™ from the very characteristics, which, according to P&G, were the innovative â€˜add-onsâ€™. Pringles were uniform in shape and texture. It was not broken. It was not burnt or greasy. It was sold in red cans. It contained preservatives. These attributes were plus points of the product in the opinion of P&G. The company wondered why customers did not patronize Pringles despite the delivery of good value.
What went wrong with P&G?: P&G wrongly assumed that the customer would be delighted with the two attributesâ€”better shelf life and absence of breakageâ€”it had added to the product and would be willing to pay 10% premium price. But, in the customerâ€™s perception, neither of the two attributes meant significant value. In improving breakage and shelf life, the company was merely solving its problems in distribution. The customer, in any case, was not willing to pay a 10 % premium price. On the contrary, local brands fared better in the customerâ€™s value cost balance. In short, the Pringles venture failed because P&G failed to develop a product that was important to the customers.
1. Value is fundamental to the marketing process.
2. Value is what the customer thinks is value.
3. Customer analysis is of vital importance in marketing, as it is the route for finding out what is of value to the customer.