Oeloraiinants of Customer-Oeliverett value

AFi'LYING VALUE CONCEPTS An example will help here. Suppose the buyer for a large construction company wants to buy a tractor from Caterpillar or koniatsn.The competing salespeople carefully describe their respective offers. The buyer wants to use the tractor in residential construction work, l ie would like the tractor m deliver certain levels oI' reliability, durability, performance, and resale value. He evaluates the trscinrs and decides that Caterpillar has.:! Ingher product value based oti perceptions of those an rib tiles. I le also perceives differences in the accompanying services—delivery, training, and maintenance—and decides that Caterpillar provides better service and more knowledgeable and responsive personnel, Finally, he places higher value on Caterpillar's corporate image- Me adds up all i he values from these four sources—'product, services, personnel, ami Image- and perceives Caterpillar as delivering greater cus-turner value.

iííics he buy the Caterpillar l ratio r?Not necessarily- I le also examines ti is total cost Of trans* acting with Caterpillar versus Komaisu, which consists of more than the money. As Adam Smith observed Over two centuries ago, "T he real price of anything is the toil and trouble of acquiring it." Total customer cost includes the buyer's time, energy, and psychic cosis. The buyer evaluates these elements together with the monetary cost to fbftn a total customer cost. Then the buyer considers whether Caterpillar's total customer cost is tot} high in relation to the lota) customer value Caterpillar delivers. If it is, the buyer might choose the Koniatsu tractor, 1'he buyer will choose whichever source he thinks delivers the highest customer perceived value.

CaterpKlar sens tractuis Itelhisone noi just on um product s attributes, bul also on me value of ine Now II'1 us us® ,llls decision-making theory to help Caterpillar succeed in selling to this buyer. Caterpillar can Improve its offer in t Ir retí ways, first, it can ¡tincase total customer value by improving product* services, personnel, and/or image benefits. Second, it can reduce the buyer's nonmonetary costs hv reducing the time, energy, and psychic co.sts. Third, it cart reduce its product's monetary cost to the buyer.

Suppose Caterpillar concludes that the buyer sees its offer as worth 520.000- Further. stip> pose Caterpillar's cost of producing the tractor isSM.ODO. This moans that Caterpillar's offer potentially generates StJ.QOO over the company's cosl, so Caterpillar needs to charge a pricc between $1-1,004 and S2U.OOO. if it charges less than £14.4.00, It won't cover its costs; ¡fit charges more than &p,QG0, it will price itself out of the market.

the price Caterpillar charges will determiné how much value will be delivered tn [he buyer and how much will flow m Caterpillar. For example, if Caterpillar charges Si 9,000. it is creating 51,00(1 of customer perceived Value and keeping $5,000 for itself, The lower Caterpillar sets its price, the higher the Customer perceived value and, therefore, the higher the customer's incentive to purchase, To win the sale. Caterpillar must offer more customer perceived val tie than Komatsu does.1

Some marketers might argue thai the process we have described i* ton ratio nal, Suppose thfc customer chooses the Komatsu tractor, 1 low can we explain this choice? I [ere arc three possibilities.

1. Tin- buyer »tight he under orders to hnyat the lowest jtrice. The Caterpillar salcspct soil's task is to convince the huver's manager that buying on price alone will result in lower long-term profits.

2. The Ernyer u'iff ivím- tie finí' the company rcíifíteí that the Kcutiaifti tractor is more expensive to operate. í he buyer will Ititik good in Hie sfiort run: he or she is maximizing personal benefit. The Caterpillar salesperson's task is to convince other people in the customer company that Caterpillar delivers greater customer value.

3. The buyer enjoys a tpiig-ierbt friendship with the Koiuntsu salesperson. In rliis case. Caterpillar's salesperson needs to show the buyer that the Komatsu line tor will draw complaints from the tractor opera tors when they discover íts Iflgjh fuel cost and need for frequent repairs.

The point of these examples is clear; Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to tile company's benefit.

Customer perceived value is a useful framework that applies to many situations and yields rich insights. Here are its implications: First, ihc seller must assess the lotal customer

value ami totftl customer cost assocfaM whh each cpniMÜlors offer In order to know how bis or her offer rales ill the buyer's mi tul. Second, the seller who is at a customer perceived value disadvantage has two alterna lives: to increase total customer value or to decrease tola I customer cost. The former calls Tur Strengthening or augmenting the offer's product, services. personnel, and Image benefits. The latter calls for reducing the buyer's costs fey reducing the priee. simplifying the ordering ant! delivery process, or absorbing some buyer risk by offering a warranty,5

de 11 ■-■ ERif JCS Hit CUi O M f R v.. ■ Consumers have varying degrees of loyalty to specific brands, stores, and Companies. Oliver tie lines loyalty as "A deeply held commitment to re-buy Or re-patron iza ft preferred product or service in the future tlespite situational influences and marketing efforts having ¡he potential to cause switching behavior,"0 A 20UH survey of American consumers revealed thai some of the brands that have great consumer loyally include Avis rental ears, Sprint long-distance service, Nokia mobile phones, RLtz-Carlton Ilutéis, and Miller Genuine Draft beer.7

The key to generating high Customer loyally is to deliver high customer value. MicIntel Lmmng, in his Hrfhv r ii ig Prop ta h íe Vain e, says that a company must design a competitively superior value proposition aimed at a specific market segment. hacketl by a su pe rio r val Hedí 1 i very system.8

The value proposition consists of the whole t-ltisirr nf benefits the company promises tu tie! i ver; it is more than the tore positioning of the offering. For example, Volvo's core positioning has been "safety," Jiut ilie buyer is promised more than just a safe car: other benefits include a long- lasting ear, good service, and a Eprtg warranty period. Hasically, the value proposition is a statement about the insulting experience customers will ^aiti from the company's market offering and from their relationship with the supplier. The brand iuijsi represent a promise about (he total experience customers can expect. Whether the promise is kept depends on the company's ability to manage iis value-delivery system, The value-delivery system Includes all the experiences the customer will have on the way to obtaining and using ihe offering.


Siitisli Airways ancf^msrrcan Airlines may use me same kind of aircraft to fly executives linst class between New V:,1'k and London, bul British Airways l¡Wt beats American Airlines by meeting customers' needs let convenience and rest a! every step tii the ¿ounney. BA's value-delivery system ¡netuíes a separate first-glass express check-m and security clearance, plus a pre-llight express tneal service in ihe first-class lounge so thai time-pressed executives cart ma¡(¡m¡7e sleep time on <be plane withoul the distraerán of in-!Jigh1 meats. BA was the first to put seals that recline into perfectly Hal beds in its first-class seclion, and in tlie Uniled Kingdom a fast-track cus-lorrts area spfeeris tiu^ executives on their way,8

A similar theme is emphasized hy Simon Kntt?: and Stan MaltJan in iheir Competing oh i'aÍNe,"' Too many companies create a value gap by failing to align brand value with customer value. Brand marketers iry to distinguish their brand from others by a slogan ("washes whiter") ora unique selling proposition ("A Mars a day helps you work, rest, and play"), or by Ljugiiieniitig the basie offering with added services ("Our hotel will provide a computer upon request"). Yet, they are less successful in delivering distinctive customer value, primarily because ihcir marketing people focus on ihe brand image and noi enough on actual product nr service performance. Whether customers will actually receive ihe promised value proposition will depend on ihe marketer's ability to influeiu'e various core business processes. Knox and Ma Ida n want company marketers i o spend as much time Influencing the company's core processes as they do designing the brand profile. Mere is an example of J company that is a master al delivering customer value.

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