Value to Customer

The Value to the Customer OR "Customer Perceived Value" as it is popularly called has been defined as 
"The difference between the prospective consumer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives"
in the book 'Marketing Management' by Philip Kotler.


The book classifies "Total Customer Benefit" as 
"the perceived monetary value of the bundle of economic, functional and psychological benefits customers expect from a given market offering because of the product, service, people and image". 


Similarly, the "Total Customer Cost" is the 
"perceived bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the given market offering, including monetary, time, energy and psychological costs".


Let us try and explain this with the help of a basic illustration that reinforces the above statements which has been provided in the same book:

According to the diagram and the statements mentioned above, we might be able to decode the book's views on the concept of 'Value to Customer'. 

The books suggests that the Total benefit to customer is the summation of the Product benefit, Services benefit, Personnel benefit and the Image benefit of the product:

1. Product benefit: This would account for the attributes of the product in question which might entice a potential consumer to decide to choose this product over others when given a similar choice.

a. In case of the combo meal, the product benefit would be the toys/gifts that come free along with it, the decent value for money proposition, quick sustenance for a matter of hours etc.

2. Services benefit: This term would account for the attributes of the services offered along with the product. Any kind of help offered with a product or instructions or assistance would fall under this.

b. All kinds of instructions on the boxes in which the meal is served would be the services offered. Also, there are contact details on the cartons provided in case a customer needs to interact with the brand personally. These would mostly be an email, a phone number and/or a social networking platform.

3. Personnel benefit: It includes the customer's perception of the utility value of the personnel in the system of the product to him/her. Better, knowledgeable and well trained personnel assisting a customer would be a great help.

c. If people who serve a customer at a Mc'Donalds outlet actually add value to his experience at the outlet or the delivery man provides excellent timing and great people skills the customer has actually been provided with great personnel benefit. These may be expected or unexpected by a customer-nonetheless, getting good personnel to work with adds great value to the product's interaction with the customer.

4. Image benefit: The image a brand/company holds in the market always has a very important effect on the consumer's decision. Reputation and image together form a very crucial part of a customer's transactions with a brand depending upon circumstances he/she has experienced during his buying process.

d. Mc'Donalds as a brand is huge in India. Hence, the factor of 'having had a meal at McDonalds' is a big thing for a customer.

Similarly, the Total cost to customer is a summation of the monetary cost, time cost, energy cost and the psychological cost of the product:

1. Monetary cost: This term encompasses the literal cost incurred by a customer in order to obtain the product. This includes all kinds of cost to the customer including travelling to the buying place to travelling back to any convenience charges that might be applicable.

a. Travelling 'X' kilometers using a specific mode of transport by spending 'Y' amount of money in the process and then spending 'Z' amount of money to buy the product. This could be measured in currency.
b. Hence, 

Monetary cost = X + Y + Z Rs.

2. Time cost: This would be the total amount of time that has been invested by a customer during his buying process. This will, like the earlier case of monetary cost, involve the total amount of time that was ever required from the buying idea to the actual time when the product was acquired.

a. This would be really difficult to calculate given that getting influenced by the product and the time until the product was actually bought.
b. Although, given that this was actually done, the outcome would be in seconds, minutes, hours, days etc.


3. Energy cost: The energy spent by the buyer during the entire process of buying is the energy cost of acquiring the product. However, it is not very clear how and what exactly has the term 'energy' has been used here for. Also, physically measuring the total energy spent in the process would be an extremely difficult proposition.

a. Traditionally, energy has been calculated as a function of work done and scientifically would be measured in units such as foot*lbs. or N*m.


4. Psychological cost: Similarly, the total mental effort made during acquiring, maintaining, using, sustaining the product from the moment it was bought to the moment it was rendered useless would fall under this category.

a. How psychological costs of a product interaction would be measured is another topic for a discussion as it would take lots of data to biologically decide what goes where. But that is not the discussion here-basically, the unit will be other that currency, seconds and N*m.


From above points (and sub-points), we can infer that 'Total Customer Benefit' and 'Total Customer Cost' are functions of their components mentioned in the diagram and below. However, if one has a look at the components, they do not belong to the same class and are not comparable. Hence, it might not be possible to obtain a one exact figure which can be called either the 'Total Customer Benefit' and "Total Customer Cost'. So a summation of the two which provides us with the 'Customer Perceived Value' will not be possible to calculate.

It is not possible to add up values of quantities that cannot be compared on the basis of their measures. So basically, the explanation-while it states very well the various components in the 'Total Customer Benefit' and 'Total Customer Cost', the mathematical part of this seems a little vague.


Hence, summing it all up, we can say that the 'Customer Perceived Value' for a product is a function of the 'Total Customer Benefit' and 'Total Customer Cost' (rather than a summation) which are in turn, functions of their respective sub-types (mentioned in the diagram and explained above).


Random Musings:

Although it might not be possible to get all the sub-components of either the benefit or the cost on the same datum, it might be possible to compare them in a different manner. A random thought which came out of a mind conditioned to think like an engineer-simply putting it down here:

Instead of considering the 'Total Customer Benefit' and the 'Total Customer Cost' as a single value, represent them both as 4 tuples as below:

F1 (a, b, g, d) : Total Customer Benefit as a function of (a, b, g, d)
F2 (e, f, q, h) : Total Customer Cost as a function of (e, f, q, h)

and F (F1, F2) : Customer Perceived Value as a function of (F1, F2)

Hence, if expressed in such a way and by providing universal options as answers to each of the variables (say a range of 0-5 for each attribute a, b, g, d, e, f, q and h) and then performing weight addition according to a fixed scale, we might be able to get equations of the form of 

F1 = f (aa, bb, c g, dd)

F2 = f (xe, yf, zq, wh)

which might make it possible to calculate an F = f (F1, F2)

So even if it might be impossible to calculate an exact number, it might, perhaps be possible to calculate a 4 tuple of numbers which might enable to compare products with reference to 4 tuple scores of other products.

Again, this is just a probable possibility yet interesting. And as always, I would like to sign off on an interesting note.

Until the next blog then!