Do you ever wonder why you purchase a product or service ‘X’ against 100’s of its competitors?
You simply purchase product/service ‘X’ because in your mind or maybe in actual also, the product/service ‘X’ provides more value to you than its competitors products.
Now, let me first define what I mean by the term ‘value’ before I go on to talk about the concept of customer value in marketing.
Value is one of the most important terms in marketing and it refers to the overall benefits that a particular product or service offers.
Now, mind you, that benefits are not as same as features of a product.
Features refers to the specifications of a particular product or service whereas benefits refers to simply how a product/service can make a person’s life better. Though the benefits are ultimately derived from features only.
Apple is one those companies that tends to use benefits in their copy and commercials rather than features.
Remember the tagline/slogan “1000 songs in your pocket” from the the classic Ipod commercial?
Apple almost always choose to talk about the benefits of their products in simple terms that even a layman can understand instead of using tech jargon as features.
Humans derive value from benefits only, not features. So it makes sense for Apple to use benefits in their commercials and copy.
What is Customer Value in Marketing?
Customer value refers to the overall value that a customer is able to derive from a particular product or service.
Firstly, there are 2 things that you need to keep in mind:
- Customer value can be both positive and negative.
- Customer value is based on perception and that’s why it varies from person to person. So for example, a customer ‘X’ may derive different value from a particular product/service than the customer ‘Y’ because the way that they will perceive the components of customer value will generally always be different.
The formula to calculate customer value in Marketing is:
Customer value = Perceived Benefits – Cost
Now, there can be two scenarios:
If perceived benefits > Cost, then the customer is satisfied, and
If Perceived benefits < Cost, then in this case the customer will be dissatisfied or he will simply decide to not purchase from you (if he hasn’t alredy)
As I explained earlier, benefits or perceived benefits refers to how a particular product or service can make a person’s life better or provide them a feasible value.
Since the perceived benefits are based on perception, the benefits will be different for one person than another.
The second factor that decides the customer value or the overall value that a customer gets from a product/service is ‘Cost’.
Cost is considered/calculated not just in terms of the amount spent on avaivling the product or service but also on the time and energy invested in searching the product, evaluating the product, learning how to actually use the product etc.
Example of Customer Value:
I usually travel through Metro bus whenever I have to travel from my city to another city. For me the metro bus provides 3 main benefits:
- The Metro buses are very clean unlike most of the other buses in the area.
- The Metro buses are comfortable and have lots of spaces.
- The Metro buses are air conditioned which makes it a good place to be at when there’s a lot of humid in the summer time here (in India).
Now, the amount that I have to spend in terms of money to travel from my city to another particular city is just 50. The time or energy that I need to spend on searching the bus stop and the time it arrives is only one time.
Now in this case, the benefits I’m receiving from this bus service are way greater than the cost (for me), and so the customer value will be positive in this case and I’ll be a satisfied customer.
Another important thing to note down here is that customer value is not calculated manually. Infact, customer value is calculated subconsciously by the mind.
So, for example, if you go on to purchase a product or service from a store, then your mind will automatically calculate the benefits that you will receive out of the product or service and the cost that you will need to pay in order to avail those benefits.
And, generally just in a second you will come on onto conclusion whether or not you should purchase that product.
For example, just few days back, I went to eat at Wow Momos, and I saw the chocolate momos in their menus which cost ₹160 for 4 momos. Immediately my mind calculated that the cost was greater than the benefits and I decided to not buy it. But as I said earlier the customer value depends upon the perception of people and so these same momos at the same price can give a very high value to someone else.
Now, the question is – How to increase the customer value?
For this purpose there are only two ways that you you can take:
The first one is that you can increase the benefits that your product or service offers. So, for example if you are a company currently selling a wired trimmer then to increase the benefits you can make the trimmer wireless or cordless so that the customer can use it anywhere regardless of a plug point is available or not.
The second thing that you can do is that you can decrease the cost that your customers have to pay in terms of money, time or energy.
For example, let’s say you run a retail furniture store and you want to decrease your customer’s cost in terms of energy and time they invest in searching for you, coming to your store and ordering the products.
Now to decrease the cost what you can do is that you can start an ecommerce website for you retail furniture store. The website will make it more convenient for your customers to buy from you and it will reduce the time that they have to spend in visiting your store. With this it will decrease the invisible cost that your customers were paying in terms of time and energy.