Providing the Best Values – Cost Balance

One of the basic premises in marketing is that customers expect many benefits from a product, and accordingly, marketers have to extend as many of these as possible. The crunch is that the provision of these benefits does have its associated costs. And, it is here that the business firm’s role becomes significant. The firm must go close to customer’s expectations of benefits as well as cost. The firm should maximize the benefits and arrest the cost to the customer so that the customer gets more for less. When his perceived benefits and value is more than what it costs to him, he is happy with the product offer.

The firm knows that the customer will compare and contrast competing offers in the market in terms of value, with regards to what they cost him and arrive at the best-trade-off. The firm, on its part, tries to utilize its value delivery system in such a way that it arrives at the best possible value-cost balance. The firm’s intention is to reduce the total delivered cost to the customer, while meeting his most preferred expectations through the offer. Every firm strives to score better on the customer’s benefit rating.

Customer’s Mental Process of Judging Value:

The market offering of the firm, through its attributes, is supposed to carry the many benefits the customer seeks. In fact, every benefit promised by the product, carries a measure of value to the customer. One important point to be stressed here is that value assessment done by the customer is not an exact or totally objective calculation as such. It is his perception and that is why it is called customer perceived value.

The customer’s mental process of judging the value of the product often runs on the following lines: Looking at the many benefits offered by a particular product/brand, the customer says, ‘Oh, it look quite sturdy and it is worth so much … it makes less noise , that is really welcome …. They have done some improvements with the motor, and that is worth so much … and they claim that the service is very efficient and that is a real boon…the company also has a good reputation, their other products are well talked of … overall it is a good buy at that price…’. The customer makes a mental estimate of the worth of the product for the price he has to pay. Tangible and readily measurable attributes like functional utility of the product as well as intangible attributes like brand power and company image are reckoned. Value is a composite of measurable as well as intangible attributes. The customer’s estimate is based on various information which he has on hand from different sources.

We mentioned that this value assessment is nothing but the customer’s perception and that it occurs to him like a stream of thought. This does not mean that the value assessment process is devoid of data and measures.

It is the job of the firm to pack its offer in such a way that a given segment of customers use predictable and uniform yardsticks in estimating the value of the offer. The firm ensures that in the matter of estimating the cost too, the segment of customers use predictable and uniform criteria. In fact, the very objective of market segmentation and market targeting revolves around this requirement.

The customer assigns priority for each benefit; different benefits gain different priorities, depending on the priority assigned to them by him.

The total weight thus assigned to a given product offer, indicates the total value that the customer attributes to it. It is called the total customer value. It represents his personal estimate of the total benefits he would gain from the product.

Now consider the cost of securing the product. Price of the product is just one element of the cost (through the major element) to the customer. For the firm, the price it fixes may cover all its costs or most of it; but for the customers over and above the price several other costs are to be reckoned. He may have to place an order for the product and wait; the after-sales service location may be far off; the service cost may be high; and the spares may be difficult to get. The customer allocates a cost to each such item. The price of the product plus all such incidence of costs make up the total cost for the customer. It is called the total customer cost.

Total customer value minus total customer cost is the delivered value to the customer; it is termed as customer delivered value. It is the customer’s net value gained from transaction. Lesser the cost the more is the delivered value for him.

For the same product offer, different customers arrive at different estimates of value. In the matter of cost too, the estimates of customers differ. This is what makes the marketer’s task challenging.