Customer Value
This article covers meaning, importance, types, parameters & example of Customer Value from marketing perspective.
What is Customer Value?
Customer Value is the incremental benefit which a customer derives from consuming a product after paying in return. The term value signifies the benefit that a customer gets from a product. It is the difference between the benefits (sum of tangible and intangible benefits) and the cost. Customer value is dependent on the three factors – Quality, Service and Price. Hence, these three together form the ‘Customer Value Triad’. The value of a product increases with its quality and service, as the benefits increase. On the other hand, the value decreases with increase in price because of the increase in costs increase in this case.
Customer Value Parameters
The image below shows the different parameters which can determine the actual customer value delivered to customer from the marketer or manufacturer. These are:
1. Quality
The value of the product is derived from the quality of a product. A well finished, long lasting, sturdy product will have more value as compared to a poor, low-quality product.
2. Price
Customer value is often evaluated by the price of the product or service. There can be the same product by two companies, but they can charge different prices. And if the customer feels justified, he or she can pay a higher price if the perceive it as a high value product.
3. Service
Similar to quality, service is an intangible value which a company can offer, and create customer value. A company offering good service, quick customer response and resolving customer queries, will always have an upper hand as compared to competition.
4. Marketing/Branding
Marketing helps a company position its product in the most accurate way. A good, strong, positive branding about a product can lead to higher value in the mind of the customer.
5. Social Influence
Word of mouth regarding the product as well as perception of the product in the society also defines the customer value which a product gets.
6. Past Experience with the product
If a customer has used a product in the past, and he or she knows the exact benefit, there is high chance that the customer would purchase the product again, and hence they have a high value for the product & brand.
The above parameters can be used by the sellers to define the customer value they want their product or service to deliver.
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Customer Value Types
Customer Value can be calculated in two ways : Desired Value and Perceived Value. Desired value is what customer expects without still buying the product whereas perceived value includes cost into calculation.
Perceived Value = Tangible Benefits/Costs Paid
Actual value is what comes out after consuming the product. If actual value is more than perceived value then the customer value is very high and vice versa.
Cost plays a very important role in customer value as it is the parameter which a customer can use to evaluate similar competitors. Similar products with same perceived value can have different customer value based on the price they sell for.
The concept of value is vital for any marketer as any product or service can be sold only if the customer is getting some value out of it. Hence, marketing itself is defined as, the creation, communication and delivery of Value.
Importance of Customer Value
Customer value is important both for the customer as well as the producer or manufacturer. Customer value is the metric through which better product and service offerings can be produced. A positive customer value will keep the product in demand in the market and will result in repeat business for the seller or the manufacturer. On the other hand, if after paying the price, the customer is not able to derive a tangible (or intangible) benefit from the product or service, the product will not sell again.
Customer value can also be seen as 'Value for Money'. If a customer perceives that he/she received a positive value of the money paid for the product, they will buy again and also spread word of mouth leading to market success. Customer value is single most important parameter in business but is not straight forward to apply or calculate. It is very important for the pricing and product departments who can use it to have a precise balance between the features and price so that the customer derives the value post purchase.
Customer Value Example
Let us imagine a cake shop selling pineapple pastry with basic ingredients and look. The pastry has cake at the bottom and some cream in the middle with a slice of pineapple at the top a 2$ per piece. The customer who buy it don't return nor review the pastries well. This shows that at 2$ per piece the customer may or may not be getting the actual value he or she perceived before buying.
Let us see the scenarios below :
1) The same seller started selling the pastry at 1$ per piece. Suddenly the sales rose and customer started coming back. This may have happened because at 1$ the customer is happy with the pastry he is getting even if it is just average pastry.
2) The same seller made the pastry different with small pieces of pineapple included in the cream as well as added 2 pieces of pineapple on the top. Again similar customer response followed as scenario 1. Again the answer can be increase in actual value at 2$ a piece.
The above 2 scenarios show how product can be changed either in attributes or price to alter the value it can deliver.
Hence, this concludes the definition of Customer Value along with its overview.
Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.
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