Marketing Management Lecture 3, Chapter 5 - Creating Customer Value

Customer value

Worth of the offering to company’s target customers, defined by the offering’s benefits and costs

• Functional

• Psychological

• Monetary

Customer value: Functional value

The benefits and costs directly related to an offering’s performance. (performance, reliability, durability)

Customer value: Psychological value

The psychological benefits and costs associated with the offering. (emotional benefits when buying a car)

Customer value: Monetary value

The monetary benefits and costs associated with the offering. (offering’s price, discounts)

Offering’s ability to create value

Determined by three key factors:

1. The attributes defining the company’s offering

2. The relative importance of these attributes for target customers

3. The offering’s performance on these attributes.

Value Function

The value function refers to how customers perceive the benefits of a product or service relative to its cost

Value Function: Reference-Point Dependence

The reference-point dependence aspect of the value function reflects the fact that consumers often do not have well-articulated preferences and that their evaluations of market offerings depend on the decision context.

Value Function: Loss Aversion

The loss-aversion aspect of the value function extends the principle of reference-point dependence to assert that people value the positive (gains) and negative (losses) deviations from the reference point in a different fashion, placing more weight on losses than gains.

Value Function: Diminishing Marginal Value

The principle of diminishing marginal value implies that the utility from improving an offering’s performance on the same dimension does not increase in a monotonic fashion, and that after a certain point improving the offering’s performance will produce marginally diminishing increases in the subjective valuation of the offering.

Value Function: Effort Optimization

Adjusting the effort required from consumers to acquire or use a product or service, aiming to maximize perceived value and customer satisfaction. (People minimize the mental effort in choosing a product)

The perceived effort is a crucial component of the perceived costs side of the value function, and reducing this effort can significantly enhance the attractiveness of an offering.

Developing a Competitive Advantage

To succeed in the market, an offering must not only create value for customers but also do so better than the competition, focusing on competitive advantages that are relevant to customer needs.

Competitive differentiation is not about actual differences among competitive offerings; it is about differences that are noticeable and perceived as relevant by target customers.

Strategies for Creating Superior Customer Value

The three core strategies to achieve competitive advantage:

• Improve the offering’s performance on a given attribute.

• Add a new attribute on which the offering has an advantage.

• Increase the perceived importance of an attribute on which the offering has

  an advantage.

Positioning

Process of creating a meaningful and distinct image of the company’s offering in target customer’s minds.

Value proposition

(Weighted) sum of all benefits and costs associated with the offering

Positioning Statement

Internal document that identifies the key components of an offering’s strategy to guide tactical decisions related to the product, service, brand, price, incentives, communication, and distribution

Positioning Strategy

1. Defining the Frame Reference

2. Identifying the Primary Benefit

Positioning Strategy: Defining the Frame Reference

Defining a frame of reference aims to provide customers with a benchmark that will underscore the value of the offering.

• Need-based framing: directly links the benefits of the offering to a particular

  customer need.

• User-based framing: defines the offering by associating it to a particular type

  of buyer.

• Category-based framing: defines the offering by relating it to an already

  established product category.

• Competitive framing: defines the offering by explicitly contrasting it to

  competitors’ offerings and typically highlighting those aspects of the offering

  that differentiate it from the competition.

• Product-line framing: defines the offering by comparing it to other offerings

  in the company’s product line.

Positioning Strategy: Identifying the Primary Benefit

The key to positioning is making tradeoffs: deciding not to promote certain benefits to bring the key benefit(s) into focus. The manager must choose which benefits to promote:

• Positioning on functional benefits: aims to create functional value by

  emphasizing a particular aspect of an offering’s performance.

• Positioning on psychological benefits: emphasizes the psychological value

  associated with the offering.

• Positioning on monetary benefits: emphasizes the monetary value associated

  with the offering.

Common positioning strategies

The manager must choose how many benefits to promote:

1. Single-benefit positioning: involves emphasizing the value delivered by the

   one (primary) attribute the company believes will most likely provide

   customers with a compelling reason to choose its offering.

2. Multi-benefit positioning: emphasizes the benefits delivered by the offering on

   two or more attributes

3. Holistic positioning: emphasizes overall performance without highlighting

   individual benefits, enticing customers to choose the offering based on its

   performance as a whole rather than on particular benefits