Customer Value

Proposition
 – Value = Benefit – Cost
– Consumer will prefer Product A over Product B if:
What is – (BenefitA - CostA ) > (BenefitB - CostB )
– ValueA > ValueB
customer
perceived – A company can increase consumer preference for its
offering by either:
value – Increasing benefits
or
– Reducing costs

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 Total customer benefit
Components
=
of customer
benefits Product benefit + Services benefit + Personal
benefit + Image benefit

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 Total customer cost
Components =
of cost to Monetary cost + Time cost + Energy cost+
customer Psychological cost

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 Favorable Points of
Approach All Benefits Resonance Focus
Difference

All favorable points of

All benefits customers The key points of which
difference a market
receive from a market are of maximum value
offering has relative to
offering to a customer
Focus the next best alternative
e.g. Televisions, Real e.g. Baby products,
e.g. Beverages,
Estate Google Cloud
Toothpaste
Approaches to
defining value Answers the customer
"Why should the
customer purchase the
"Why should the
customer purchase one
”What are the most
important features for
positions question offering?”
offering over the
other?”
the customer?”

Knowledge of how own

market offering delivers
Knowledge of own
Knowledge of own superior value to
Requires market offering
market offering and
customers, compared
competition
with competition – 3 Cs
approach
Requires deep
Has the potential understanding of
Benefit assertion Value Presumption
pitfall customer through
thorough research
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 – Benefit Assertion Anomaly:
– Stressing on a long list of benefits of products with little
Drawbacks of differentiation from competitors.
– This requires very little knowledge of competitors
”All benefits” – Results in a benefits which offer no differentiation to consumers
and
“Favourable – Value Presumption Anomaly:
– Highlighting points of difference in benefits with respect to
points of competitors but customers do not perceive any value in them
difference” – This requires thorough knowledge of competitors but little
knowledge of consumers
– However, there is no real value that is delivered to the customer

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 – The concept of Value Equivalence Line (VEL) was introduced by
Mckinsey.
– VEL illustrates illustrates the relationship between companies
Value within a market, by showing their positioning based perceived
benefits and perceived price.
Equivalence – Say you are to plot companies in an industry on a graph, where x-
Line axis represents perceived customer benefits and y-axis represents
perceived price.
– If market shares hold constant (and if you have the right
measurement of perceived benefits and perceived prices), then
companies will align in a straight diagonal line called VEL

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 Perceived Price
Value Mercedes

Equivalence
Skoda
Line
Maruti

Perceived Benefit

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 Value Disadvantaged

E – Share Loser

Perceived Price
C
Share Gainers
and Losers B D – Share Gainer

A Value Advantaged

Perceived Benefit

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 Perceived Price
Distribution of
customers
along the VEL

Perceived Benefit
Customers are not evenly distributed along the VEL. They are generally clustered.

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 Factors causing clustering of customer distribution:
• Order of entry
• Marketing
• Asymmetry of information

Even in an ideal market customer distribution along VEL will not be even due to
Distribution of consumer preferences. For example:

customers • Value bracketed customers: These are customers who want a

minimum or maximum benefit level e.g. Minimum requirement of
along the VEL airbags in a car, maximum memory requirement in a cell phone

• Price capped customers: These customers are unwilling to pay more

than a fixed amount on a product or service e.g. monthly telephone
expense

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 • Static value management involves determining the right position of
an offering with respect to the VEL.

Static Value • Failure to find the correct position can lead to:
• Loss of business due to over estimation of relative perceived
Management benefit leading to over pricing
• Loss of profitability due to under estimation of relative
perceived benefit leading to loss of profitability

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 • Dynamic value management involves pro-actively/reactively
changing one’s position on the value map in anticipation of or
reaction to consumer preferences or market dynamics
Dynamic Value • Failure to find the correct position can lead to:
Management • Loss of business due to over estimation of relative perceived
benefit leading to over pricing
• Loss of profitability due to under estimation of relative
perceived benefit leading to loss of profitability

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 Value Disadvantaged

Dynamic Value

Perceived Price
C
Management
– Proactive B

Movement
A Value Advantaged

Perceived Benefit

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 Value Disadvantaged

Dynamic Value

Perceived Price
C
Management
– Reactive B

Movement
Value Advantaged

Perceived Benefit

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 – www.hbr.org
– www.wikipedia.com
References – www.mckinsey.com

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