What are the types of customer values?

The simple version of the concept of customer value is that individuals evaluate the perceived benefits of some product or service and then compare that with their perceived cost of acquiring that product or service. If the benefits outweigh the cost, the product or the service is then seen as attractive (see Figure 2.1 "Perceived Cost versus Perceived Benefits"). This concept is often expressed as a straightforward equation that measures the difference between these two values:

Figure 2.1 Perceived Cost versus Perceived Benefits

From the standpoint of small businesses, what sense can be made of all this confusion? First, the components of the benefits portion of customer value need to be identified in a way that has significance for small businesses. Second, cost components also need to be identified. Seth, Newman, and Gross’s five types of value provide a solid basis for considering perceived benefits (see Figure 2.2 "Five Types of Value"). Before specifying the five types of value, it is critical to emphasize that a business should not intend to compete on only one type of value. It must consider the mix of values that it will offer its customers. (In discussing these five values, it is important to provide the reader with examples. Most of our examples will relate to small business, but in some cases, good examples will have to be drawn from larger firms because they are better known.)

Figure 2.2 Five Types of Value

The five types of value are as follows:

1. Social valueA basis of value that involves a sense of relationship with other groups by using images or symbols. involves a sense of relationship with other groups by using images or symbols. This may appear to be a rather abstract concept, but it is used by many businesses in many ways. Boutique clothing stores often try to convey a chic or trendy environment so that customers feel that they are on the cutting edge of fashion. Rolex watches try to convey the sense that their owners are members of an economic elite. Restaurants may alter their menus and decorations to reflect a particular ethnic cuisine. Some businesses may wish to be identified with particular causes. Local businesses may support local Little League teams. They may promote fundraising for a particular charity that they support. A business, such as Ben & Jerry’s Ice Cream, may emphasize a commitment to the environment or sustainability.

2. Conditional valueA basis of value that is derived from a particular context or a sociocultural setting. is derived from a particular context or a sociocultural setting. Many businesses learn to draw on shared traditions, such as holidays. For the vast majority of Americans, Thanksgiving means eating turkey with the family. Supermarkets and grocery stores recognize this and increase their inventory of turkeys and other foods associated with this period of the year. Holidays become a basis for many retail businesses to tap into conditional value.

   Another way businesses may think about conditional value is to introduce a focus on emphasizing or creating a sociocultural context. Business may want to introduce a “tribal” element into their customer base, by using efforts that cause customers to view themselves as a member of a special group. Apple Computer does this quite well. Many owners of Apple computers view themselves as a special breed set apart from other computer users. This sense of special identity helps Apple in the sale of its other electronic consumer products. They reinforce this notion in the design and setup of Apple stores. Harley-Davidson does not just sell motorcycles; it sells a lifestyle. Harley-Davidson also has a lucrative side business selling accessories and apparel. The company supports owner groups around the world. All of this reinforces, among its customers, a sense of shared identity.

   It should be readily seen that these five sources of value benefits are not rigorously distinct from each other. A notion of aesthetics might be applied, in different ways, across several of these value benefits. It also should be obvious that no business should plan to compete on the basis of only one source of value benefits. Likewise, it may be impossible for many businesses, particularly start-ups, to attempt to use all five dimensions. Each business, after identifying its customer base, must determine its own mix of these value benefits.

   As previously pointed out, the notion of perceived customer value has two components—perceived value benefits and perceived value costs. When examining the cost component, customers need to recognize that it is more than just the cost of purchasing a product or a service. Perceived cost should also be seen having multiple dimensions (see Figure 2.3 "Components of Customer Value").

Figure 2.3 Components of Customer Value

Perceived costs can be seen as being monetary, time, and psychic. The monetary componentA component that consists of the purchase, operating, service, switching, and opportunity costs associated with any product or service. of perceived costs should, in turn, be broken down into its constituent elements. Obviously, the first component is the purchase price of the product or the service. Many would mistakenly think that this is the only element to be considered as part of the cost component. They fail to consider several other cost components that are quite often of equal—if not greater—importance to customers. Many customers will consider the operating cost of a product or a service. A television cable company may promote an introductory offer with a very low price for the cable box and its installation. Most customers will consider the monthly fees for cable service rather than just looking at the installation cost. They often use service costs when evaluating the value proposition. Customers have discovered that there are high costs associated with servicing a product. If there are service costs, particularly if they are hidden costs, then customers will find significantly less value from that product or service. Two other costs also need to be considered. Switching cost is associated with moving from one provider to another. In some parts of the country, the cost of heating one’s home with propane gas might be significantly less than using home heating oil on an annualized basis. However, this switch from heating oil to propane would require the homeowner to install a new type of furnace. That cost might deter the homeowner from moving to the cheaper form of energy. Opportunity cost involves selecting among alternative purchases. A customer may be looking at an expensive piece of jewelry that he wishes to buy for his wife. If he buys the jewelry, he may have to forgo the purchase of a new television. The jewelry would then be the opportunity cost for the television; likewise, the television would be the opportunity cost for the piece of jewelry. When considering the cost component of the value equation, businesspeople should view each cost as part of an integrated package to be set forth before customers. More and more car dealerships are trying to win customers by not only lowering the sticker price but also offering low-cost or free maintenance during a significant portion of the lifetime of the vehicle.

These monetary components are what we most often think of when we discuss the term cost, and, of course, they will influence the decision of customers; however, the time componentThe time required to evaluate, acquire, and purchase a product or a service. is also vital to the decision-making process. Customers may have to expend time acquiring information about the nature of the product or the service or make comparisons between competing products and services. Time must be expended to acquire the product or the service. This notion of time would be associated with learning where the product or the service could be purchased. It would include time spent traveling to the location where the item would be purchased or the time it takes to have the item delivered to the customer. One also must consider the time that might be required to learn how to use the product or the service. Any product or service with a steep learning curve might deter customers from purchasing it. Firms can provide additional value by reducing the time component. They could simplify access to the product or the service. They may offer a wide number of locations. Easy-to-understand instructions or simplicity in operations may reduce the amount of time that is required to learn how to properly use the product or the service.

In summary, business owners need to constantly consider how they can enhance the benefits component while reducing the cost components of the value equation. Table 2.1 "Components of Perceived Benefit and Perceived Cost" summarizes the subcomponents of perceived value, the types of firms that emphasize those components, and the activities that might be necessary to either enhance benefits or reduce costs.

Table 2.1 Components of Perceived Benefit and Perceived Cost

• Measurable quality
• Performance
• Reliability
• Support network

• Quality assurance in product and services
• Superior product and process design
• Selection of correct attributes
• Ability to improve product and operations
• Management of value chain

• Builds identification with social, ethnic, or class group
• Emphasize lifestyle
• Development of interaction among people
• Build bonds within groups

• Market research correctly identifies customer base(s)
• Ability to build social community among customers

• Assist in making one feel good about themselves
• Attachment to product or service
• Produces a change in how others see the user
• Trustworthiness
• Profound customer experience
• Aesthetics

• Market research understands psychological dimensions of customer base(s)
• Marketing content emphasizes desired psychological dimensions
• Reliability between marketing message and delivery

• Novelty
• Fun
• Evoke interest in product or service
• Interest in learning
• Produces a willing suspension of disbelief

• Creative personnel
• Creative product or process development
• Commitment to innovation
• Willingness to experiment

• Produces meaning in a specific context
• Tied to particular events
• Tied to holidays
• Demonstrates social responsibility

• Flexibility (can alter physical facilities or marketing message depending on context)
• Management commitment to responsible action

• Reduce purchase price
• Reduce operating costs
• Reduce maintenance costs
• Reduce opportunity costs

• Superior design
• Operational efficiency
• Cost containment
• Quality control and assurance
• Easy acquisition

• Reduce time to search for product or service
• Reduce time to purchase
• Reduced learning curve

• Broad distribution channels
• Web-based purchasing option
• Web-based information
• Superior design

• Simplified use
• “Comfortable” feeling with regard to product or service use

• Superior design
• Ability to write clear instructions

Video Clip 2.2

Creating Customer Value

Creating value is the essence of a start-up. This video reviews the product and value created by a watch with no hands.

Video Clip 2.3

Simple Rules: Three Logics of Value Creation

Three core logics of the value proposition.

Video Clip 2.4

Articulating Your Value Proposition

A video on how to better articulate your value proposition. This is informative but very long (about one hour).

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